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10/22/09

LA Times: Is China's rebound for real? -- by David Pierson and Tommy Yang

For the complete report from the latimes.com click on this link

Is China's rebound for real? -- by David Pierson and Tommy Yang

Though economists credit Beijing's policies for carrying the country through the worst of the global crisis, some question the sustainability of the recovery. Some say that too much of China's growth is coming from investment in inefficient state-owned enterprises and that current stimulus policies are diverting the country away from the reform long needed to balance its economy. "They're moving the economy in exactly the wrong direction," said Yasheng Huang, a professor at the Massachusetts Institute of Technology's Sloan School of Management and a leading critic of China's economic strategy. At the heart of China's recovery is a $585-billion government stimulus package and a torrent of new bank loans totaling $1.27 trillion this year. The injection has kept industry humming, maintained employment at reasonable levels and launched billions of dollars' worth of public infrastructure projects. Beijing has also increased spending on health, education and pension plans. To stimulate domestic consumer spending, the government has offered subsidies for purchases of fuel-efficient cars and home appliances. But some complain that those policies still favor large, government-owned firms at the expense of small businesses in the private sector.

Beijing is hoping its investment can keep the economy moving forward long enough until the global economy rebounds. Then it can address reforms. "It's a bet the government is making that this will pay for itself," said Stephen Green, head of China research for Standard Chartered Bank. "You can take a skeptical point of view, as some people have, or be optimistic. To be honest, I don't think we know what's going to happen."

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