China’s economy on fire

Scott Jagow Nov 1, 2006


SCOTT JAGOW: Just to give you an idea of how fast China’s economy is growing: Last quarter U.S. GDP grew at annual rate of 1.6 percent. Today, the International Monetary Fund predicted China’s growth would be more than 10.5 percent this year. And the IMF was pretty skeptical that China’s gonna slow things down, as many countries would like it to do. Arthur Kroeber is with China Economic Quarterly.

ARTHUR KROEBER: What’s impressive about China is not that it’s growing at 10.5 percent this year, but this is going to be the fourth straight year at which it’s grown at about 10 percent a year and this is one of the fastest sustained rates of growth that any country has seen since Japan in the 1960s.

JAGOW: What’s wrong with the economy growing that fast?

KROEBER: Well, I think if you’re the Chinese government the answer is not much. Inflation is low, there’s a big trade surplus, most people in society are gradually getting richer and Chinese industry is doing quite well and it’s very profitable. So they look at this picture and say there is no problem. An awful lot of China’s growth last year and this year is coming from its trade surplus, and there’s nothing inherently wrong with it but there is a risk that if the Chinese trade surplus keeps growing and growing that this will provoke a backlash from other countries, particularly the U.S. and Europe.

JAGOW: China has said that it is trying to reign in this growth. Is it actually doing anything to do that?

KROEBER: If you look carefully, what the government is doing, it actually is not terribly interested in reducing the rate of growth. What the government wants to reign in is excessive investment in a few industries such as steel, aluminum smelting and car production where they think there’s too much capacity and they think there’s a risk of too much money being lent to enterprises in those sectors and the result being bad loans piling up at the banks. But they’re not worried about the overall rate of growth.

JAGOW: Arthur Kroeber is the managing editor of China Economic Quarterly.

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