The Chinese Economic Debate Is China Overheating

When a bubble economy is thriving, people are prone to believe that it will
last forever (Ignatius, 2004). This general feeling existed in Japan in the
1980s and in America in the late ’90s. Today, many people believe that this
is what is happening in China — the “miracle economy,” where returns have
been so consistently high that people are starting view investing in China
On any of the capital’s boulevards, billboards advertise “Season’s Park,” a
brand-new fancy apartment complex that bills itself as “Home of the Tycoons
(Ignatius, 2004).” The entrance is features images of the Statue of Liberty
and the Arc de Triomphe, and there’s a telephone “hot line” so newly
wealthy Chinese residents can rush to buy property there.
The new Chinese leadership understands the danger of overheating, and is
now taking slow yet steady steps to slow the economy from last year’s 9.1
percent growth rate. However, like Alan Greenspan’s 1996 warning about
“irrational exuberance” on Wall Street, the Chinese government’s warnings
have had little effect. During thefirst quarter of 2004, economic growth
“Some people think that China’s economy is already overheated; others think
it’s in the process of becoming overheated,” explained Zhao Qizheng, the
minister who runs the State Council Information Office (Ignatius, 2004). He
believes that China needs “sustainable” growth.
Li Ruogu, the deputy governor of China’s central bank, has an even sharper
opinion: “If credit is growing as fast as it has been, we will be concerned
about a bubble,” he said (Ignatius, 2004), adding that the central bank had
raised reserve requirements for Chinese banks this month mainly “to send
out the message that we are concerned about overheating of the economy.”
Li warned that the central bank may raise interest rates soon, a move many
analysts think is long overdue (Ignatius, 2004). Li said inflation during
thefirst quarter was…

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