Wednesday, May 11, 2016

Yi Xianrong — Correctly assessing China's current economic growth

Recently released figures show that China's GDP in the first quarter grew by 6.7%, better than market expectations. In particular, many figures from March are very encouraging. For example, domestic fixed-asset investment grew by 11.1%, higher than 10.2% from January to February; infrastructure investment increased by 19.6%; investment in real estate development grew by 6.2%; production of large-scale industries grew by 6.8%, the highest level since last June. In large-scale industries, the cement output rose sharply by 24%. Auto and steel industries also increased 8.9% and 3.3% respectively.
The market cheered at these figures, believing than China's economy had begun to bottom out and rebound. Just think, the GDP of the US and European countries grew less than 2% while China's GDP was approaching 7%, three times greater. So it is absurd to predict that China's economy will have a hard landing. However, the cheering about China's economy is mixed with worry now.
Although GDP growth in the first quarter hit the target set by the government, it again took the old road: Intensive infrastructure construction and excessive credit expansion were used to push up prices in the real estate market and the home prices like in the past years. That is to say, the GDP growth in the first quarter mainly came from increased government infrastructure construction and home sales boosted by surging home prices. China's GDP growth fueled by these sectors could continue for one year or so but not constantly and may even create a bigger problem.…
Looks like China is building a housing bubble based on land rent.
Correctly assessing China's current economic growth
Yi Xianrong, professor at School of Economics, Qingdao University

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