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China’s Improving Economy: Out of the Woods or Still a Giant Bubble?

Daily Ticker
China’s Improving Economy: Out of the Woods or Still a Giant Bubble?

Is China’s economy back?

According to some chief executives, the world’s second-largest economy has rebounded and Chinese consumers have returned to their old spending ways.

Roland Decorvet, Nestle’s Greater China chairman, told Bloomberg that China “is still an amazing opportunity.” His comments echo the perspective of Porsche China CEO Deesch Papke, who said this week at the World Economic Forum that “the epicenter of the world has for many reasons moved from the U.S., across Europe and now is sitting in Asia, and China is obviously the powerhouse of Asia.”

Related: China Will Invest $1 Trillion Globally; How Much Will U.S. Get?

But is everything as rosy as it appears?

Doubts Rise as China Touts Upturn” screams the headline in Friday’s Wall Street Journal.

Fitch Ratings analyst Charlene Chu tells the paper, “As long as the credit boom is still under way, the day of reckoning still is likely to be delayed…Anyone who thinks China is on the verge of working through its credit problems is mistaken.”

China may be experiencing the same problem that is plaguing U.S. government officials: how to wean the nation off cheap money, says The Daily Ticker’s Aaron Task and Lauren Lyster. A real estate and infrastructure boom financed by eager banks willing to extend credit has transformed China’s landscape and way of life…but at what cost? The country's infamous “ghost towns” have been widely publicized along with newly constructed buildings toppling over shortly after being erected.

The communist nation’s total lending has also skyrocketed; debt as a percentage of GDP has risen to 200% from 125% in 2008.

Chinese government leaders have expressed concerns over China’s record rate of growth. The Chinese economy grew 7.6% in the first half of 2013, outpacing developed nations but well below the rate it recorded just a few years ago.

The soft versus hard landing debate in China continues.

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