Speed Of China’s Growth Triggers New Official Warning

By John Richardson

The chairman of China Construction Bank has spoken about the dangers created by China’s GDP (gross domestic product) expanding by more than 9.5% in 2010, which, according to many analysts, seems highly likely: GDP is estimated to have risen by 11-12% in Q1.

“It (too-rapid growth) will mean more duplication of construction, more excess capacity and higher waste of capital,” the bank’s chairman, Guo Shuqing, is reported to have added.

Oversupply of money and increased liquidity leading to inflation and asset-price bubbles were further problems he identified.

New bank lending amounted to one-third of China’s GDP in 2009 – and at Yuan9,600bn ($1,400bn) was double the amount leant the previous year.

This latest official warning about overheating – a concern long-expressed by this blog – might indicate that further economic tightening measures are being considered.

Basic chemicals and plastics exporters to China, as we also keep repeating, are therefore going to need to budget for the possibility of a sharp dip in business during the rest of 2010.

We keep saying these things because we continue to be fed the same bland public-relations speak from chemical company officials.

They keep insisting that China will continue to deliver stellar growth, both in the short and long-term (we’ll revisit the longer-term issues later this week).

If this vacuous nonsense is just for the consumption of the odd gullible journalist perhaps that’s fine, as maybe beyond our view some sensible scenario planning is taking place.

But at the very least what journalists write about is being read by investors, meaning over-expectations could be followed by a sharp drop in share prices.

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