Palatine Financial Analysts Warn that Chinese Growth May Not be Sustainable.

April 16, 2010 - PRLog -- China’s economy has outpaced goals and expectations. 2010 Quarter 1 results show 11.9% growth compared with a year ago. The gross domestic product gained 1.2% in Q1, indicating significant growth. According to National Statistics Bureau spokesman Li Xiaochao: “The momentum of national economic recovery has further expanded, which has laid a good foundation for reaching the targets set for the whole year.”

Recent growth was charged primarily by industrial growth, 22% for heavy industry and 14% for light industry, and an astounding 18% expansion in consumer retail sales. The recent reports mark China’s return to double digit economic growth experienced in the 90s.

According to Palatine Financial analysts, the explosive growth has outpaced expectations. The high levels of economic growth demonstrated by China typically result in inflationary pressures, which in turn result in higher prices that slow expansion. China has been able to successfully curb inflation; however many feel that the Yuan is vastly undervalued.

Mark Cambrea of Palatine Financial also pointed out that the real estate market in China is still inflating rapidly. Luxury housing is being built at a dizzying pace and there doesn’t seem to be a demand fill the new projects. Real estate prices have raised as much as 50% per year, and though all may seem copasetic, a bubble may be inflating that could burst leaving China’s economy deflated and impacting the rest of the world.

According to China Expert John Makin, "There are so many economies that are benefiting from rapid growth of exports to China. If that were to suddenly slow, that's a big impact. If they handle it badly, it has the potential to even risk a global double dip recession. I don't think that will happen, but China's record in the area is not great."

Cambrea agrees, and warns of Real Estate risks in China. His opinion is that so long as lending is slowed and developers are unable to borrow large percentages of development costs, a bullet may be dodged. However if development continues at its current pace, the bubble will eventually burst, and that bubble seems large enough to bring china and countries dependent on Chinese consumption into recession.

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