Another set of red flags from China, warning signs that the Chinese economy is overheating with it returning to double digit growth in the fourth quarter, with a jump of 10.7% year-on-year. The big worry is that a lot of this includes speculation in the stock market and property. The best solution to stimulate consumer spending. Now, while the consumer spending stats in China are up, a lot of that includes government consumption. We just don't know how much consumer demand there is out there.
China's growth is fragile and the Chinese government signaled that this week when Chinese banking authorities instructed the major banks to curb their lending. That's because credit growth in China (i.e. the number of loans extended by Chinese banks) is growing faster than the economy. That is dangerous. China has not learned the lessons from Japan and the US over the last decade. The same thing happened in those economies and the world is paying the price for it now.
Australian business commentator Robert Gottliebsen says the problem is even worse in China because everything is owned by the government. That will make it even harder to manage.
He too argues that the only solution is to increase consumer spending but that, he says, will be difficult because consumer spending is only a fraction of China's GDP. Increasing it to strong levels can't happen overnight.
This is not to say that China is about to collapse. It will continue to grow over the next 12 months, a welcome development given that there will be little if any growth from the US, Japan or Europe. But this week's developments are a warning sign that China's growth is fragile.
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