China's Stimulus Working - Perhaps Too Well
Montlake, Simon, The Christian Science Monitor
Late last year, as a global recession snapped at China's heels, Tomer Rothschild's sales team began to sweat. Selling gym membership to white-collar workers had suddenly gotten harder.
Today, the treadmills are humming again. "Back then, people were worried about their jobs. There's much less of that now," says Mr. Rothschild, CEO of Ozone Fitness, which owns 10 clubs in Beijing.
As goes the fitness boom in Beijing, so goes China's economy. While Washington argues over the impact of its stimulus package, China's government has ramped up spending so rapidly this year that economists are warning of stock and real-estate bubbles. Beijing argues that supporting the recovery remains its priority.
One reason for caution is that China's exports continue to slide. Data released Tuesday showed that exports in July fell 23 percent year-on-year, the ninth straight month of decline.
But on the back of record bank lending and state-led investment, China's economy is accelerating: It grew by 8 percent in the second quarter, snapping a period of slowdown.
What recession? Malls, restaurants are packed.
Far from being felled by the global slump, many Chinese consumers believe that the good times are still rolling. Nearly 5.4 million cars were sold in the year to July 31, up 30 percent over last year. Leisure travel - seen as a luxury only a few years ago - is growing rapidly. Many restaurants and malls in Beijing are packed.
More robust Chinese spending holds out promise for other struggling economies. Domestic consumption has long lagged in China, where households save much of their income and the government runs huge trade surpluses that are ploughed into foreign-currency reserves, mostly US government debt.
"It's not the big adjustment we'd all like to see in China away from investment and towards consumption. But if you have relatively strong [economic] growth, you still end up with strong consumer growth," says Michael Buchanan, an economist for Goldman Sachs in Hong Kong.
Economists say it's unwise to expect Chinese consumers to pick up the slack from debt-saddled Americans, as growth is still driven largely by state-led investment. But open Chinese wallets point to an eventual rebalancing of trade flows, so that Asian countries consume more of what they produce.
Massive spending on infrastructure
China's stimulus has soaked up demand for industrial output, giving relief to sectors hit by slowing exports. Huge spending on infrastructure projects like roads and public works have jolted the economy.
The downside, however, is that heavy industries like steel aren't rationalizing, says Arthur Kroeber, managing director of Dragonomics, an economic consultancy in Beijing. "The risk is that producers will expand capacity," he says.
One contentious trade issue is China's currency, which the US Congress has criticized as undervalued. A stronger currency would increase the purchasing power of Chinese consumers and discourage excessive investment. But the Obama administration has not …
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Publication information: Article title: China's Stimulus Working - Perhaps Too Well. Contributors: Montlake, Simon - Author. Newspaper title: The Christian Science Monitor. Publication date: August 12, 2009. Page number: 6. © 2009 The Christian Science Publishing Society. Provided by ProQuest LLC. All Rights Reserved.
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