China's Miraculous Recovery, Too Good To Be True?

Skeptics come out in force after Beijing announces 8.9% GDP growth

When China announced that its economy grew 8.9% in the third quarter, you'd expect China-boosters to pour into the streets, acclaiming the nation as the world's new engine of economic growth. But instead of praise, experts are casting a skeptical eye on the Middle Kingdom's economic figures.

This is a major turnaround from the spring, when many pundits applauded Beijing's mammoth $586 billion stimulus package as a sign of the country's migration away from an export-intensive economy. Though a coterie of columnists (Fareed Zakaria, in particular) still fawns over China's response, others are wondering whether China's recovery plan is all wrong. Why? These skeptics say asset bubbles, social upheaval and slow growth all lie ahead.

• A Bubble Stimulus Zakaria, who recently declared China the real winner of the recession, lauds China's stimulus plan for concentrating the bulk of its funds on "investment for future growth: infrastructure and new technologies." However, in an op-ed piece for the Financial Times, Qin Xiao, chairman of the China Merchants Group, voices concern over Beijings huge liquidity injection. Qin says that while the plan has helped avoid the worst recession since the Great Depression, there are asset bubbles lurking ahead, specifically pointing out recent surges in China's stock and property markets. "I do not believe a quick steep bounce driven by fiscal fixed investment is a good thing for China," he says. While worried that tightening monetary policy would lead to a "second dip" in the economy, Qin believes it is still imperative China shift from a loose monetary policy to a neutral one.

• A Stimulus Revolt To The American's Michael Auslin, the asset bubble described by Qin Xiao above has manifested itself in the madness of China's affluent crowds. China's growing conspicuous consumption, he says, poses a sizable threat in "a country that has such uneven economic growth." Auslin, who recently attended a Chinese auction where a bottle of wine was sold for $93,000, expects the Chinese Communist Party to begin clamping down on the economic exuberance that has driven it forward, and, if not, social upheaval could still occur. "If the world's auction houses continue to crow over massive Chinese purchases, then being a contrarian may be the smartest move of all."

• A Pseudo Stimulus Forbes' Gordon Chang points out that however impressive China's 8.9% GDP growth in the third quarter may seem, there is plenty reason to believe "Beijing's statisticians have gone back to their old tactic of making up figures to support the Politurbo's predictions." For one, Chang finds it difficult to believe car sales in China nearly doubled every month of the third quarter, while gasoline sales were nearly flat. Looking at China's trade numbers, Chang is curious to know how China, long dependent on sales abroad, managed to grow at such a rapid clip despite a precipitous drop in exports for the third quarter. "If [Wen Jiabao's] numbers were real, he would be worried about overheating. But he's apparently not."