Expert: China's Economy May Slow Next Year

China may face an economic slowdown in the middle of next year because the nation's growth model is unsustainable, says Stephen Roach, chairman of Morgan Stanley Asia.

Economic growth in China accelerated to 8.9% last quarter, fueled by government stimulus spending and more than 1 trillion USD of new bank lending. That rebound is causing complacency in China, which still faces "tough challenges in years ahead," Roach said at a financial forum in Shanghai on October 24. "China's growth model is much more about supply than demand. It's not a sustainable model for China. It's not a sustainable model for any nation."

The "imbalance" created by China's overdependence on exports for growth was compounded by the Beijing government's efforts to bolster the world's third-biggest economy as the global recession sapped demand for Chinese-made toys, clothes and electronics, Roach said. China's stimulus measures have also raised concerns about overcapacity and asset bubbles.

"Macro imbalances are particularly acute right now," Roach argued at the forum. "China's economy risks slowdown again around mid- 2010."

China's exports in September fell 15.2% from a year earlier, the smallest decline in nine months. The Middle Kingdom has now posted export declines for 11 consecutive months.

The government's 586 billion USD stimulus plan unveiled in November last year spans earthquake reconstruction work, roads, railways and low-cost housing. Chinese banks doled out a record 8.67 trillion RMB (1.27 trillion USD) of new loans in the first nine months, more than double the same period a year earlier. That helped economic growth accelerate even as exports worsened. China grew 6.1% in the first quarter of 2009, the slowest pace of expansion in almost a decade, as shipments abroad fell 17.1% during the period. Growth picked up to 7.9% in the second quarter as exports slid 21.4%.

"While the government is ensuring economic growth, we are also concerned about overcapacity in some industries," Xiong Bilin, deputy director of the National Development and Reform Commission's industry department. The commission is China's top economic planning agency. China is curbing financing for projects in industries including steel, cement and aluminum to prevent the government's stimulus package and record bank lending from spurring excess investment.

In the next few months, China's central government will focus on balancing the need to maintain stable and relatively fast growth with the need to adjust the structure of the country's economy and better manage inflationary expectations, the State Council, China's cabinet, said on October 21. The Council also announced that the nation faces increasing difficulty in managing liquidity and the structure of loans is "not rational

 "The global economic recovery is still uncertain and unstable," Wang Huaqing, the disciplinary secretary of the China Banking Regulatory Commission, said at the financial forum in Shanghai on October 24. He added that the regulator "will continue prudent oversight and regulation of banks."

Full story in English

News category: China