Chinese economy in danger of ‘overheating’
Following fears that China’s economy could overheat, China’s premier has called for urgent steps to prevent this from happening. There are concerns that China’s runaway growth could precipitate a crisis. “We must take forceful measures to resolve prominent problems to prevent the economy’s rapid growth from turning into overheating,” said Wen Jiabao.
He said officials must “resolutely control” a surging investment boom. Chinese leaders worry that double-digit growth in investment and lending could soar out of control, fuelling inflation and leaving banks exposed to bad debts.
The government raised interest rates in April to try to dampen the economy, and another rate increase is a possibility. It has also imposed limits on construction and bank lending. The government may also let the yuan strengthen, increasing the cost of exports, which are currently driving the booming economy.
In the past week, the yuan has hit post-revaluation highs against the dollar, one year after it was freed from its peg against the US currency and allowed to float within managed bands.
Mr Wen also called for more efforts to improve life for China’s poor by ensuring stable growth in farming and other industries in the countryside, home to some 800 million people.
A growing middle class has developed in the main eastern cities, but the challenge for the Chinese government is to expand this new wealth across more of the vast country.
At its Central Committee meeting in October, the Communist Party will discuss building a “harmonious country” as it seeks to narrow the economic gap between booming cities and less-well-off rural areas.
Earlier in July, the Chinese central bank, The People’s Bank of China, said it thought China’s red-hot economic growth would slow gradually this year.
