Accelerating Growth Has Market Thinking Increase in Yuan Likely

Latest growth figures from China indicate that for the first quarter of the year, China’s economy grew at an annualized rate of 11.9 percent. This was slightly higher than expectations and market watchers are debating how much of this growth is the result of government stimulus spending, and how much is true, organic growth.

“In the short term you can get as much growth as you are willing to pay for”, Michael Pettis, professor at Peking University’s Guanghua School of Management, told the BBC.

“[But] it has turned out to be very hard for Beijng to rein in investment spending, especially at the local [government] level,” he added.

“The worry is that these seemingly-strong growth numbers may reflect a surge in investing that turns out to be very wasteful in the longer run.”

It is this increase in investing – much of it in the form of highly-leveraged property development – that could derail China’s amazing story of late. Many economists feel that China must turn the heat down on consumer spending and borrowing, and for this reason, it appears likely that China will allow the yuan to appreciate.

Source: BBC News

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