Hard landing feared for China’s economy after Olympics

July 3rd, 2008 - 11:22 am ICT by IANS  

By Till Faehnders
Beijing, July 3 (DPA) The year of the Beijing Olympics could decide whether China’s economic boom is bound to last. “Clouds are now forming over China’s economy,” warned Stephen Green, chief economist at Standard Chartered Bank in Shanghai.

Inflation is on the rise, and rapid growth is threatening to overheat the economy.

Natural catastrophes like January’s heavy snowfall, which paralyzed transport and cut electricity; May’s devastating earthquake, which killed nearly 70,000 people and left 18,500 missing; and summer floods in southern China were adding pressure on China’s economy.

Prime Minister Wen Jiabao prophesied that 2008 might become the “most difficult one” for the Chinese economy. Hosting the Olympic Summer Games would change little of his assumption, economists said.

Several economists even fear a slowdown after the Games, as several other former hosts had witnessed.

“The golden years are over, at least for the moment,” Green said.

Export growth to the US, China’s largest export market, is “down to zero”, and exports to Europe were also looking weak, Green said.

Domestic consumption might alleviate the export slowdown, but China’s wealth is distributed unevenly. The majority of the country’s 800 million rural dwellers remain too poor to take part in China’s developing consumer culture.

May’s earthquake in south-western China, in which many buildings collapsed like a house of cards, showed that the People’s Republic of China remains a developing country in many respects.

“The rescue effectiveness has been first world; the death toll is very much third world,” Andy Xie, a well-known economist, wrote in the South China Morning Post, a newspaper published in Hong Kong.

The recent boom years increased China’s ability to deal with such crises, Xie wrote: “Economic development doesn’t just make people rich. It saves lives.”

By some estimates, reconstruction after the quake could even speed up economic growth. Deutsche Bank, for example, revised upward its 2008 growth estimate for China based on expected investments in reconstruction to 10.7 percent from 10 percent.

Beijing, however, wants to put the brakes on growth to prevent an overheating of the already sizzling economy.

The US banking crisis, the weak dollar and a global economic downturn were bringing about “internal and external difficulties”, complained Wen, who is in charge of economic policy.

High inflation rates are proving a major headache for the prime minister, who called rising prices the “biggest concern” of the Chinese people.

In May, consumer prices increased 7.7 percent while food prices rose by 19.9 percent.

Yet Beijing’s leadership was apparently not “especially eager to take the hard steps necessary to solve the problem, such as raising interest rates or allowing further appreciation of the yuan”, Green said.

Analysts said they think China’s leadership does not want to risk a hard landing for the economy in the year of the Olympics.

But Green said China is still at the point where strong inflation fighting would be “painful but not catastrophic” because the foundation of its development is solid.

This autumn, China can look back at 30 years of economic reforms, during which the country toiled to evolve from serving as the world’s workbench to becoming the growth engine of the global economy, well on its way to replacing Germany as the third-largest economic power and the world’s chief exporter.

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