- China's contribution to the world economic growth was around 25 percent. Source: http://news.xinhuanet.com/english/2007-10/31/content_6976134.htm
- China's foreign reserves is $1.2 trillion - an Everest of money that towers over reserves held by any other nation. Source: http://money.cnn.com/magazines/fortune/fortune_archive/2007/05/14/100024842/index.htm
- China saw an increase in its total energy consumption in 2006. The consumption included 2.37 billion tons of coal, up 9.6 percent year on year; 320 million tons of crude oil, up 7.1 percent; 55.6 billion cubic meters of natural gas, up 19.9 percent; 416.7 billion kilowatt-hours of hydropower, up 5 percent; and 54.3 billion kilowatt-hours of nuclear power, up 2.4 percent. In 2006 China's consumption of steel products rose 17.2 percent to 450 million tons. Its consumption of other materials included aluminium, up 32.1 percent to 8.65 million tons; ethylene, up 23.9 percent to 9.39 million tons; and cement, up 14.5 percent to 1.2 billion tons. Source: http://www.chinamining.org/News/2007-02-28/1172643366d3784.html
- In 2006, China's overall FDI inflows totaled $69.5 billion. Source: http://www.uschina.org/info/forecast/2007/foreign-investment.html
An excerpt from the report" Variables included in the COI
The COI tries to capture demand-push factors that could eventually lead to a rise in inflation. This must be distinguished from exogenous cost-push factors, such as higher oil prices or higher food prices due to adverse weather or other external shocks.
We include six variables available in monthly series at least since January 1993 (the year of the latest overheating episode). The variables are:
- — Merchandise imports as a gauge of overall domestic investment and consumption demand;
- — Retail sales as a gauge for private consumption;
- — Industrial sales, a proxy for industrial production, as a gauge for investment activity;
- — Money supply as a gauge for inflationary pressures arising from monetary policy;
- — Domestic credit, to gauge the risk of a boom-bust credit cycle;
- — Income per capita, as a proxy for wages, to gauge the tightness of the labour market.
The danger signs of oveheating in China are glaring;
- Excessive Loan Growth
- A surge in money supply
- Runaway Investment
The reasons for the same have been evident for quite sometime too:
- A fixed Yuan to the USD promoting excessive imports to the US.
- However US consumption of the Chinese imports had not been fueled by the higher wages and employment but rather on low interest rate policy has led to an upsurge in housing prices and financed an increase in consumer debt.
The US real estate bubble has already burst, is the China inflation going to hit the world econony too. Today China more integrated to the global ecoonmy than it ever was.
Another synopsis of an article on the same topic that appeared in ET yesterday -
The Organization for Economic Cooperation and Development (OECD) latest Economic Outlook raised its forecast for China's economic growth this year to 11.4% from the earlier estimate from 10.4%. An inflation of 6.5% is an all time high in a decade though much lower than the 22% in 1994. However back then China was never as closely integrated with the world economy. Thus the greater fear this time round. Critics claim that the Yuan is undervalued by as much as 40%.
The Chinese leaders aware of the imminent cris in their annual economic planning for 2008 has planned the following measures to curb this growth:
- Tight Monetary policy
- Control Bank loans- raise interest rates, boost bank reserve and other measures to discourage investments in property projects and factories out of the fear that a glut of unneeded projects could spur defaults on bank loans that would trigger a financial crisis.
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