No clear signal China is overheating, say experts

PETALING JAYA: Some sectors are overheating due to excess investments, but there is no indication that an economic bubble is inflating in China, say experts. 

“There is no clear signal that China is overheating. Instead, certain areas are over-invested,” said United Overseas Bank group head of economic-treasury research (global markets & investment) Jimmy Koh Chew Teck.  

Koh believes that an overheating economy will have strong growth, high inflation and big current account deficit.  

“China only has one of the three symptoms i.e. strong economic growth,” he told StarBiz.  

He believes that the Chinese authorities are watchful on the country's economic health, and pre-emptive measures will be taken to smoothen the growth path. 

Koh expects consumer spending and private investments to drive the economic growth in China, in addition to exports.  

Last week, China raised lending and deposit rates, plus the banks' reserve requirements, to mop up the ample liquidity that is blamed as the key factor overheating the economy.  

The Chinese government also widened the daily trading band for yuan against the US dollar to 0.5% from 0.3%, signifying possible further appreciation on the currency. 

Economists anticipate the growth on the Chinese economy to moderate to high single-digit growth from over 10% in the past few years.  

However, soaring share markets have raised concerns that the bubble may burst soon and will, in turn, affect the Chinese economy, especially consumer spending. 

“It will affect consumer spending if there is a bubble in China's stock markets and it bursts.  

“But the impact is unlikely to be significant, given that the size of the Chinese stock markets, compared with its economy, is still relatively small,” said an economist. 

Prudential Fund Management Services Pte Ltd head of investment marketing Robert Rountree noticed that the Chinese authorities were taking measured steps to slow the overheating sectors.  

China raised interest rates on loans to curb excess private investment and drain liquidity in the stock market, he said. 

Rountree said the country also tried to stimulate growth in other sectors, such as consumer spending.  

“Balancing growth seems to be as much a priority as slowing the red-hot component of the growth,” he said. 

He added that there were some major structural changes in the Chinese economy that were “too far advanced to reverse” and the changes were expected to provide the growth momentums in China.  

Rapid urbanisation was an example, he added. 

The fast-paced urbanisation in China has led to rising disposable income and, hence, higher consumer spending. 

Related Stories:Asian markets tumble Will the bull take a breather in China? 

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