China's economy is currently going through a period of very rapid growth, a trend which has become a source of some concern for many economists and also for the government.
China's GDP grew 11.5 percent in the first half of the year, which is the highest growth rate of the last 12 years. In light of this figure, the government has modified its projection for the whole year, from the previous 10.6 percent to 11.4 percent.
Furthermore, China's urban fixed asset investments increased 26.7 percent year on year in the first six months, reaching RMB 4.6 trillion ($609.3 billion). Average industrial profits also registered a dramatic 43 percent increase compared to the same period of 2006.
It is obvious that the economy is growing with a strength that has been tending to move out of control. According to many economists, the boom is mainly based on a number of factors which have the effect of limiting costs. These factors include; natural resources, environmental pollution, work safety and labor. The total value of these key factors has still not been properly estimated in the market. Now, however, the Chinese government has initiated efforts to tackle such factors, and the upshot is likely to be a curbing effect on the country's rapid economic growth.
In addition, the rapid climb of the consumer price index (CPI) has further increased concerns regarding the healthy development of the economy. Throughout 2007, the CPI has continued to rise: up 2.7 percent in the first quarter, up 3.6 percent in the second quarter, and up 4.4 and 5.6 percent in June and July respectively. China is currently subject to strong pressure from inflation. The domestic price hikes seen in steel products in the second and current quarters are also partially due to this reason.
It is widely accepted that the CPI increase trend mainly derives from the over-supply of Chinese currency in China. By the end of June, China's balance of M2 currency supply was RMB 37.78 trillion ($5 trillion), up by 17.06 percent, while M1 currency supply was RMB 13.58 trillion ($1.8 trillion), up by 20.92 percent, compared to the same period of last year. This serious imbalance has its most important source in international trade. In the first seven months of 2007, China's export growth rate has remained at a high level of 27 percent, while the import growth rate is within a range of 14-19 percent. Meanwhile, the monthly international trade surplus is close to $20 billion.
The Chinese government has been carrying out research and implementing measures for the promotion of a more stable economy, to encourage imports and further limit exports, to regulate the state treasury, and to control the scale of bank loans. Some of these measures have already taken effect; however, more measures are awaited in the future.