Is China’s Economy Overheating?

The Chinese economy has been growing at such a breathtaking annual pace – 9.5% in the year ending in the second quarter of 2005 – that it is the toast of the world, an apparent inspiration for developing countries everywhere. But is China getting too much of a good thing?

Since he became president in 2003, Hu Jintao has repeatedly warned that China’s economy is overheating, and his government has recently acted accordingly, raising interest rates last October, imposing a new tax on home sales in June, and revaluing the Yuan in July.

But claims that China is overheating don’t seem to be based on observations of inflation. While China’s consumer price index rose 5.3% in the year ending in July 2004, this was due primarily to a spike in food prices; both before and since, inflation has been negligible.

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