Economists urge caution over production capacity
0 
Many analysts are now more concerned about the economy overheating than they were about it contracting a year ago when the global financial crisis hit China.
The country's year-on-year gross domestic product (GDP) growth reached 9.1 percent and 10.7 percent in the third and fourth quarters of 2009 respectively, and it is expected to rise further in the first quarter of this year.
The rapid growth constitutes cause for concern as the country has pumped massive amounts of investment into the financial system, say economists.
The mass injection of liquidity -new yuan-denominated lending last year almost doubled that in 2008 - jazzed up China's economy and helped industrial output resume strong growth momentum, leading to another problem: Overcapacity.
"China's production capacity is expanding continually but where is the market to satisfy this increased capacity?" said Wang Yiming, deputy director of institute of macroeconomics at the National Development and Reform Commission (NDRC).
China used to sell a large part of its products overseas, but the slump in overseas demand following the global economic slowdown has pushed many Chinese exporters to the wall, narrowing the room for manufacturers to sell goods.
Related readings: Overcapacity has no relation to central govt investment: Wen Chinese official warns of overcapacity amid industry recovery Overcapacity blights both EU and China economies China to issue specific policies to curb overcapacity
China needs to go through a "second transition", Wang told a seminar hosted by the Asian Development Bank and NDRC in Beijing on Tuesday. The second transition refers to the country's upcoming economic restructuring, which is expected to make the economy more consumption driven, services oriented and environmentally friendly. The first transition, which began in the late 1970s, was focused more on growth.
As the government put the final touches to the 12th Five-Year Plan (2011-15), leaders have realized the dilemma they face and are aiming for a more balanced development mode.
"Massive fiscal and monetary stimuli have successfully substituted for the lost growth in the short term, but Chinese leaders have made it clear there is a limit to public investment and monetary expansion," said C. Lawrence Greenwood Jr., vice-president of Asian Development Bank, during the seminar. "Chinese bank regulators and central bank officials have also been taking steps to guard against the emergence of credit bubbles and inflation."
