China Struggles To Break Economic, Social Barriers As Possible Bubble Bursting Downtown Looms Ahead

PR Log (Press Release) – Nov 02, 2009 – (MUMBAI, India)  --  China’s 2010 economic outlook doesn’t appear as promising as predicted a few months ago, according to Chris Devonshire-Ellis, Founder and Senior Partner of Dezan Shira & Associates.

Devonshire-Ellis, who spent two decades living and working in China representing organizations involved with direct foreign investments (FDI), before relocating to Mumbai this year to manage Dezan Shira’s India practice, believes the economic bubble could potentially burst next year.

Devonshire-Ellis  contends China’s economy has been impacted by the global retrenchment of capital, particularly the withdrawal of US buying power and investment that had previously driven much of the growth.   This is causing an almighty shift in the way China now has to balance its economic and fiscal modeling.  

Even with China growing its gross domestic product (GDP) by 8.9%, had US $1 trillion cash not been injected by the Chinese, it is likely the real GDP would have been no more than 4%.   Growth of less than 8% is generally considered sub par in China.   In a one party state  -- where the central and western regions need improved education, infrastructure and opportunity  -- and in other locales where the expectations have risen through the years,  the masses need to be happy or trouble can be on the horizon.

China’s ability to grow, even as the global economy improves, will be constrained, said Deveonshire-Ellis, by the possibility of a three to five year shift to an economic model based on domestic consumption and one less export driven.  The country’s ability to return to the years of spectacular growth also will be imperiled by:

*  Its government with a voracious appetite for lending ( up more than 30% from 2008 and four times faster than the nominal GDP ) and resulting in unsustainable asset-price inflation and concurrently wasteful investment yielding  excess capacity;  

* The slow pace of new or renewed commitments from the US and other countries:

* An unforeseen asset slump or banking collapse;

* China’s decision-making as well as financial management and controls which have seen massive amounts of  funds (the State alone contends that about 20% of the US $1 trillion stimulus) earmarked for infrastructure diverted  into the stock market and unnecessary housing and property speculation; and

* The lack of an independent monetary policy and China’s tight fist on it s currency,  the Renminbi (RMB).

China needs to rebalance its fiscal plans or possibly face a bust down the road.


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