The mainland economy could falter by the end of the year, with fixed-asset investment growth falling to single digits, a regional economist says. Morgan Stanley economist Andy Xie made the gloomy prediction in a report yesterday. 'The faith in the ability of the Chinese government to fine-tune the economy could be exaggerated,' wrote Mr Xie, who believes that China has overinvested more than US$200 billion since 2002 due to strong capital inflows. 'China's financial system doesn't price-risk properly and, hence, any credit surge is likely to be a bubble.' Loans issued by mainland banks have surged by 52 per cent since the start of 2002. 'There is little doubt in my mind that this qualifies as a credit bubble,' Mr Xie wrote. 'Excessive optimism about the future, ample capital inflows and a lack of risk control at banks has combined to cause this bubble.' Mr Xie's report contrasts with the assessment of other economists and the central government. The State Development and Reform Commission said this week that the government's economic campaign had been successful and a soft landing was in sight. Despite his own negative evaluation, Mr Xie said most global investors remained confident in the central government's ability to engineer a soft economic landing. 'European investors underestimate China's cyclical adjustment, in my view,' he wrote. 'European investors expect 20 per cent to 30 per cent of growth deceleration in China. This might underestimate by half or more.'
