Wednesday 3rd of March 2021

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China Could Become Second-Largest Economy

While most nations try to recover from the global recession, China could edge out Japan as the world’s second-largest economy by the end of 2010 if its gross domestic product continues its phenomenal rate of growth.

At the end of last year’s third quarter China reported its economy had grown 9.1 percent compared with the same period in 2008. By the end of the fourth quarter the rate had increased 10.7 percent compared to the final quarter a year earlier.

For all of 2008, China’s gross domestic product increased 8.7 percent. Chinese leaders have set a growth-rate benchmark of 8 percent in order for social stability to exist in their country. At such a pace it could become the No. 2 economy on earth by the end of the year.

Such news is cause for some national pride about the Chinese economic model as the nation gets through the recession seemingly unscathed while the United States and other Western economies struggle.

“When the financial crisis forced the neoliberal economic system into a dead end, the shortcomings of the capitalist system were exposed for all to see,” said a Jan. 5 editorial in the People’s Daily newspaper. “But a China that was pushed to a crossroads proved its ‘national capabilities’ in taking on a crisis by answering with the advantage of the socialist system with Chinese characteristics.”

There was even more upbeat news to report as the National Bureau of Statistics said industrial production in December jumped 18.5 percent and retail sales increased 17.5 percent. The consumer price index for the same month rose by 1.9 percent as the producer price index was up 1.7 percent. All numbers nearly matched forecasts.

But will the good news last? Officials are concerned about inflation rising, prompting the central bank to increase a key interest rate – the first such move in five months. Some observers also warn of potential bubbles in the economy, in particular in the real estate market.

The figures released by the Bureau of Statistics were mainly due to the export industry’s growth. Some economists in China are calling for economic restructuring that depends more on domestic consumption and less on exports that are impacted by the state of the global economy.

Officials also are concerned about lending by banks and defaults on loan. That’s why the Bank of China has stopped loans to curtail the swollen lending rate experienced in the first half of January. And last week regulators told state-owned banks to put more of their deposits aside as reserves against failed loans. This was sooner than expected by investors and analysts, who expected such a measure wouldn’t occur until some point in the second quarter.