By Pete Julius
China’s economy has been growing at unprecedented rates over the past few years. A lot of people are speculating that this insurmountable growth trend is about to burst. The United States grew very rapidly during the mid- to late-1990’s on the footings of a very sound infrastructure. Then in the early 2000’s we experienced an economic bust, due in large part to the massive decline in tech-related industries. As a result, we had a trickle- down effect that eventually led to a recession. China, on the other hand, is growing at a much faster pace than we witnessed and under much more fragile conditions. We debated about our own rapid economic growth during the 1990’s, and now the debate has begun about China’s ability to withstand their phenomenal growth, especially with heavy worries about their financial infrastructure.
The banks in China are carelessly lending money to just about anyone, with very little effort to conduct appropriate background checks. As a result, most of the loans are not performing up to par. All of this careless financial lending is not just taking place in China’s four main banks. The regional and local banks are also providing a plethora of irrational lending. In addition, evidence of financial corruption and embezzlement is revealing itself.
Their financial infrastructure is their biggest weakness and the Chinese government is taking needed steps to prevent a meltdown. It appears that their efforts may be working. April statistics showed positive signs: China’s economic growth slightly slowed, their trade deficit increased, their high-growth industries have slowed, and the central banks’ tighter monetary policies are showing signs of promise. The question is whether these steps will be enough to avoid a downturn.
China went through an economic downturn in the early 1990’s under much worse conditions. Since then, China has joined the WTO, improved road and highway infrastructure, and become more urbanized. These improvements are definitely in their favor, but they may not be enough. The country is growing way too fast for just about any country. It would take a miracle for them to avoid a downturn. Everyone is going to have their opinion. Otherwise, this would not be a debate. What is your opinion? Please, email me your thoughts firstname.lastname@example.org.
BusinessWeek, May 3, 2004, “Headed for a Crisis,” pages 36-44
Fortune, May 17, 2004, “Why China Won’t Hit a Wall,” pages 27-32
Owen Brown (2004, May 13), “Chinese Data Suggest Slowing in Nation’s Rapid Expansion,” http://online.wsj.com