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
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
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 pushed
publicly for revaluation, which is strongly resisted by China. …