IT HAS been known for some time that the Chinese economy is overheating. China's estimate of 12 per cent growth in GNP last year was actually double the previous forecast. Major cities like Shanghai, Shenzhen and Guangzhou have been enjoying stunning growth in the last two years.
The inflation rate stood at double digits and there are no signs of it abating. Money supply made a great leap since 1990. Last year, total bank loan shot up 20 per cent. In fact, Bank of China has already put the brakes on new loans to industry to keep money supply under control.
This prompted some observers to conclude that China will once again embark on more austerity programmes to ''fine-tune'' its growth engine.
But the worry is whether China will continue to adopt this credit tightening policy throughout the year, or whether it will turn to other more unpopular measures.
At the major swap centres, the decline of the yuan was quite pronounced. The continuing devaluation of the yuan will also have immediate impact on some of the China-concept counters, especially those relying heavily on China retail markets.
''Hot'' consumer plays had performed well last year but the high P/E ratios and devaluation of the yuan are likely working against them.
Notwithstanding all these, the outlook for China is still very good. Few would deny the tremendous potential originating from China, so long as the doors to China remain wide open.
