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Fears the Chinese Economy Could Overheat

DW Staff (act)January 24, 2008

Whereas Western developed nations are panicking about recession in the wake of the sub-prime mortgage lending crisis in the US, in China economists fear the economy could become too strong. An over-heated economy and rising inflation could bring an end to growth altogether.

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Some experts fear the Chinese economy is booming too fast
Some experts fear the Chinese economy is booming too fastImage: AP

The highest economic growth since 1994, up by 11.4 percent, and a slight cooling down in the fourth quarter -- Xie Fuzhan, the commissioner of China's National Bureau of Statistics was full of pride as he presented the latest figures to the nation.

"In the past five years, our economy has developed consistently," he claimed on live television. "The difference from one year to the next has never been more than 1 percent. Abrupt up and down movements have been avoided. That's quite an achievement. Moreover, the average net income of the urban population has grown by 9.8 percent over the past five years. In rural areas, it's grown by 6.8 percent."

Xie Fuzhan credited the cooling down of the economy towards the end of the year to the government's efforts to control investment and exports. He added he would welcome a further cooling of the economy. He predicted stable and relatively fast growth in 2008.

Investments fuel economy

In 2007 alone, key interest rates increased six-fold and the central bank ordered credit institutions ten times to keep more money in their reserves to try to rein in rapid lending.

The government said late last year it would seek other channels for companies and individuals to access foreign investment and money from non-bank sources.

"Consumption is not enough," Xie Fuzhan told the nation. "Economic growth is being driven mainly by high investments. It's also too dependent on foreign demand. We have to concentrate more on the growth of domestic demand."

Curbing rapid growth

In 2008, monetary controls will be tightened to curb rapid credit growth, Xie Fuzhan announced. Last year, inflation was a problem in China for the first time in a decade. In the summer, prices shot up -- first for pork and then for all food products. Consequently, the Consumer Price Index rose by 4.8 percent.

Xie Fuzhan said rising prices in China reflected global trends but promised recent measures to control prices would soon pay off. He said the government would do its best to stabilise prices and rebalance growth to promote consumption.

Finally, the head of China's National Bureau of Statistics expressed his optimism that the Chinese economy would continue to do well in 2008 -- the year of the Olympics when China will be on display to the whole world.