More experts fear Chinese economy will overheat

As China’s GDP and inflation surge, experts are becoming increasingly worried about the economy overheating.

China’s GDP grew by 10.3% last year, up from 9.2% the previous year, according to the National Bureau of Statistics of China. While headline inflation slowed to 4.6% from 5.1% in November, non-food inflation rose to 2.1% from 1.9%.

The government faces the dilemma of controlling inflation without choking off economic growth and pushing the Chinese currency too high, which would make the price of its exports less competitive. (article continues below)

Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics in Washington DC, says China will eventually face a trade-off between growth and inflation.

“They want to moderate the rate of price inflation, but they don’t want to step on the brakes so hard that the economy slows down dramatically,” he says in Peterson Perspectives, an in-house publication. “So they’re a little bit conflicted.”

While the number of experts who fear an overheating of the Chinese economy is growing, there are still independent authorities who expect that the coming growth slowdown will ease overheating fears.

Qinwei Wang, a China economist at Capital Economics, says the pace of economic growth will slow regardless of what policy the government adopts.

“Fiscal stimulus weakens, its effects will fade and the economy will slow down,” he says.

According to Capital Economics’ assessment, the danger that policymakers will be forced to tighten abruptly, threatening a hard landing,
is low.