Despite the global recession, China's economy has been growing strongly and, reports the World Bank, is expected to accelerate its already impressive expansion over the next few years.
In its latest report, the World Bank says that China grew by 8.7 per cent in 2009, and the momentum has continued in the first months of this year. The Bank's growth forecast for 2010 has been upgraded from 9 per cent to 9.5 per cent.
Massive stimulus measures by the government and the central bank helped push China back towards double figure growth. Investment was again the driving force in the economy, but there are disturbing signs that some of the monetary stimulus may have fed a real estate bubble. If that bubble were to burst to might have a catastrophic effect on China's prospects, as it did in Japan two decades ago, ushering an era of stagnation. Property price inflation in the big Chinese cities is running at an annual rate of 32 per cent.
The World Bank also warns that strained local government finances could destabilise China: anecdotal evidence suggests that local party officials have outcompeted with each other to gain approval from Beijing for expanding bank lending, with possibly hazardous consequences. Net new bank lending rose by almost 30 per cent of GDP in 2009. Beijing has tried to expand housing supply and curb speculation to ease the pressure on housing.
Imports have picked up recently, but the World Bank adds that the real dollar-renminbi exchange rate is back to where it was in 2001, despite intense pressure from China's trading partners for her to allow the currency to float upwards. Indeed China's trade surplus with the rest of the world is expected to widen again next year. That will mean increasing tensions with the US, as America both needs China to add to her existing $2 trillion in dollar-denominated foreign currency reserves, much of it US Treasury bills, but resents the resulting imbalances that threaten US recovery.
The flood of Chinese money to the west in the early part of this decade fed the property and securitisation booms that eventually led to the credit crunch and the worst recession in three quarters of a century. So far from addressing these global imbalances, Chinese policy seems set to perpetuate them.
Ardo Hansson, lead economist for China at the World Bank commented: "Government-led investment is bound to decelerate. But, exports are likely to continue to recover amidst a pick up in the global economy, real estate activity is likely to grow strongly this year, and consumption should remain solid."