Last month, China took another step towards global economic superpower status, announcing that in 2009 the value of its exports exceeded $1200bn, overtaking Germany and making it the world's biggest exporter. China also looks set to outgun Japan as the world's second-largest economy by the end of the year and, with gross domestic product forecast to grow by more than 10% a year for most of the decade, it will not be too long before China usurps the US as the mightiest global economy.
But there are clouds gathering ominously on the horizon. Inflation is a real threat. In recent months, prices have rocketed in everything from property and water, to dried chilli peppers and tea. Asset bubbles look inevitable: values on the country's main stock market surged about 80% last year and property in southern China's manufacturing hub, Shenzhen, have risen more than 19% since the start of 2010.
Inflationary trend
A flood of new bank lending has only fuelled this inflationary trend. Analysts say Chinese banks have lent Rmb1100bn ($161bn) already this year. This comes on top of the Rmb9600bn of new loans the banks extended last year following government orders to support the economic stimulus programme in the face of the global crisis.
Beijing is now so concerned that, in January, it took the unprecedented step of telling the most aggressive lenders - including Bank of China - to temporarily stop lending, and issued lending limits to the country's other banks. The central bank is also set to increase the proportion of deposits that big banks are required to hold as reserves, maybe by as much as 50 basis points, to 16%.
Beijing is right to be concerned that the economy is overheating. It should also be concerned about the misallocation of capital that has followed its stimulus programme: the surge in bank lending has done nothing to increase domestic consumption but has instead fuelled construction spending and business investment, building excess capacity that the global economy is not yet able to absorb.
Equally, the country's banks, which had done an excellent job of eliminating non-performing loans, may well see these return as a result of indiscriminate lending.
The International Monetary Fund sees a hard landing in China as a very real risk, citing it as one of its top things to worry about in the 2010 Global Risks Landscape. Beijing's tightening of the reins may crimp China's growth to such an extent that it damages a fragile global recovery. A significant loss in China's growth momentum could harm the world's capital and commodity markets.
If China should be concerned, then so should the rest of the world.
