Wednesday, February 18, 2004

Analysts Warn China On Verge of Economic Crisis

Not that I totally agree with this socialist web site article, but it has many interesting and informative features, making it well worth a read.

Analysts warn China on verge of economic crisis
By John Chan

The year has opened with warnings that China is lurching toward a major economic crisis that will inevitably have far-reaching global ramifications. While the Chinese regime is hailing the country’s 9.1 percent economic growth last year, analysts are noting that the growth itself has produced the type of overcapacity and rampant speculation that has characterised other economies before they experienced a severe slump.

The New York Times, for example, warned on January 18: “As 2004 begins, China’s economy looks as invincible as the Japanese, South East Asian and American economies of those earlier times. But recent excess—from the frenzy of factory construction to speculative inflows of cash to soaring growth in bank loans—suggest that China may be in a bubble now, especially on the investment side of the economy.”

Over the last decade, China’s combination of plentiful low-cost labour and a currency pegged to the US dollar has kept commodities manufactured in China cheap and competitive. This has enabled the country to become world’s primary destination for foreign direct investment, attracting $US53 billion last year. Driven by a desire to maximise profit and corporate dividends, the feverish trend to invest in China has spawned a number of serious problems.

The explosive growth of China’s export and industrial capacity has far outstripped market demands. According to a study in the December issue of the US-based Foreign Affairs magazine, China’s fixed asset investment grew 31 percent in the first half of 2003, almost triple the growth rate in 2000, but household consumption grew only by 8.8 percent to 10.1 percent in the same period.

China’s huge export sector, which is largely run by foreign-invested firms, increased 35 percent to $430 billion last year, with total foreign trade soaring to $840 billion—the fourth largest in the world. Industrial production increased 17 percent, the highest since 1995. Last year China produced 35 percent of the world’s cellular phones, 40 percent of its colour TVs and 55 percent of the world’s computer monitors. ...Link

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