Blistering growth

The Chinese economy grew 11.5% in the first half of the year. Inflation is also on the rise, with the CPI going up 4.4% in June, a 28-month high. Consumption is rising and fixed-asset investment slowing down a bit, but investment and exports are still the main drivers of economic growth. The central bank is raising interest rates, lowering taxes on interest income and increasing the banks' reserve ratio to reign in excessive lending. The central government is aware of the problem and trying by all means to do something about it. There is now even talk of taxing exports.

The bottom line is, however, that each and every local government or party leader wants the economy in his locality to grow as fast as possible, because high growth means prosperity. Cooling down measures are meant for somebody else. If this mindset doesn't change, the blistering growth will continue.

The problem with high growth Chinese style is that energy is wasted and the environment suffers. While double-digit growth rates seem to be sustainable, the underlying growth is not. Until other goals besides GDP-growth are deemed equally or even more important, the blistering growth will continue. But someday, the laws of capitalism will take their toll. The ghost of overproduction is rearing its head. When it does, the leaders will perhaps rediscover Marx.