B.

ANALYSIS
I. Definition of overheating economy
Overheating of an economy is defined as a phenomenon that occurs when its productive capacity is unable to keep pace with growing aggregate demand. It is generally characterized by an above-trend rate of economic growth, where growth is occurring at an unsustainable rate. Boom periods are often characterized by overheating in the economy.

II. Signs of overheating economy
In the history, some countries in the world dealt with overheating development of economy such as U !, India, Brazil, "ussia# !t the moment, $hina is facing with this situation. !lthough the government continuously insists that there is no sign of overheating growth in $hina, the inde%s indices are against. 1. Inflation $hina showed further signs of increasing prices as inflation rose to &.'( )O) nen chu thich )O)*year over year+ de moi ng hieu ,- in !pril versus &..( and consensus &./(. 0owever, much of the increase was related to increased food price inflation, but the overall trend of increasing prices has been flagged by the 1uarterly inflation e%pectations inde% *see the chart below+2 and lines up with the thinking and observations of most internal and e%ternal analysts which suggests the $hinese economy is showing signs of overheating. 3he near term outlook for inflation will most certainly be for continued rises in the near term, probably breaching the 4( target within a month or two. Bai nay ng ta viet ve inflation cua $hina vao thang . nen moi co du doan 4(

http://www.. 6en to nghi minh nen doi cau dau cua doan nay thanh :$hina showed further signs of increasing prices as inflation rose to 4.5% on the year.png? db*d50b.9( tu hoi thang '.) . va cau cuoi thanh :probably reaching . a ma'or component of the consumer price index. compared with 3.tradingeconomics.5-22*adf7852bc hoac"c%ng"co"the"lay"ca"doan"nay"(ao"(a"them"d%"bao"toc"do"tang"lam"phat"o" c%oi..com/Economics/Inflation-CPI. China's consumer price index rose 3. the statistics !ureau said. 6hung ma thuc te gio la thang 57 roi. vegeta!les and meat. “China's consumer prices rose at the fastest pace in nearly two years in August.com/apps/news?pid=newsarchi(e)sid=a*x+. as severe floods and unusually hot weather destroyed crops.( at the year of this year. va inflation cua 38 dat muc 4.I/ew" #$"d%"doan"inflation"trong"nam"/0. driving up the price of fruit.9( )O) in !ugust which was 7.com/&emp/China-Inflation-4ate-Chart-00000.tradingeconomics.-*ca/-*/26-2c. driving up food prices.aspx?Symbol=C !" #$so"lie%"inflation"c%a"&' http://www.5% on year in August.bloomberg.trong vong 5 hoac & thang toi. &ood prices. "he figure mar#ed the $%th straight month the inflation has risen.0 ne%"minh"s%a"nt"thi"nen"thay"bang"ben"d%oi"thanh"bang"nay"1co"so"lie%"den"thang" 23: http://www..3% in uly. "he nation's worst flooding in more than a decade has ravaged food crops and disrupted transport lin#s across the country.9( higher than government target.-. rose (.

2. but beating consensus 5'.9( )O)2 pulling back slightly from the seasonal peak earlier in the year. increased a further 5'. .&( and previous 5'(. an indicator of $hinese domestic consumer spending. Retail sales <oving on. retail sales.

and policy moves already taken to crack down on e%cessive loan growth. but a negative in terms of the inflation>overheating conte%t . Loan growth Incredibly topical.( and lifts total loans above $6) .3. the stats for !pril will give no comfort for those with concerns of overheating. o this is a positive in terms of its stimulatory effect on the economy. On a )O) basis this puts loan growth at &. given concerns about $hinese overheating.= trillion.

3he ?BO$ e%pects the broad measure of money supply which covers cash in circulation and all deposits.it lines up with comments by officials along the lines of being concerned about inflation. 3o some e%tent the pace of growth in $hina can probably absorb some of the large e%pansion in the money supply. but happy to keep conditions relatively stimulatory to help the cement the recovery.a key monetary metric and important facet to the inflation picture . and boost growth. . Money supply On a similar track. to increase up to 5/( this year compared with &77@. but there will certainly come a point where its influence will become increasingly inflationary. But as with loan growth .4.saw continued growth in !pril. money supply .

where growth is occurring at an unsustainable rate.? 3hen. 3his may be achieved by employing workers for e%tra shifts or using machinery beyond their recommended working hours.III. Causes of an overheating economy in general Overheating of an economy occurs when its productive capacity is unable to keep pace with growing aggregate demand. Causes and effects 1. Causes i. !h ma van con link o chu Boom cau cuoi day to ctrl A click vao la dc 2++. doan nay giong het denifition . If aggregate demand e%ceeds aggregate supply. 3his type . high levels of aggregate demand tend to be the cause of overheating. Boom periods are often characterised by overheating in the economy.hi%. neu phai gui ban mem cho thay thi doi 1ua file pdf truoc khi gui nhe BB . then the e%cess demand for goods must be met via the over-employment of resources. It is generally characterised by an above-trend rate of economic growth.

and about &77 million have no work at all. 3hus the ?arty.. $hina. 3his created the huge growth rates and rise in G-? in $hina that continue today.= billion+. Over the past &7 years. which like all authoritarian systems hates instability and social turmoil. Hith 597 billion yuan *U I5'. 3he $hinese economy may be overheating. the world has witnessed one of the most remarkable economic transformations in human history. 597 million former rural citizens are between Eobs in the cities at any given time. home to 5. has to create Eobs. In the situation of China tarting in 5@/'.4 billion people. or 4 percent of gross domestic product *G-?+.5. o $hina has an undervalued currency and low interest rates and has now started to build an impressive fiscal deficit as well. In this 1uest of ' percent growth. !nd successfully so. percent to 47@. ii. .47 million former public-sector employees are out of work. $hinaDs budget deficit is set to rise 5@. billion+ in treasury bonds in the &77& fiscal a year coming into place. an internationally recognized alarm level. $hina might Eust have bitten more than it can chew. 3he $hinese government is clear on its strategy for uplifting its people .. -eng CiaopingDs reforms opened the $hinese economy and were the maEor causes of $hinaDs economic growth.' billion yuan *I4/. 3he $ommunist ?arty government has been running really fast Eust to keep ahead of burgeoning unemployment .of production is considered unsustainable because the over-employment cannot be supported indefinitely. or :reform and opening up. !nd Eobs are created through growth and investment. has been e%panding its economy by more than ' percent every year since 5@'7 in its endeavor to pull its millions out of millennia of poverty.chanting the mantra of growth and doing its best to deliver. e%pansion of private business ownership and increased foreign investment in $hina. <aEor causes of $hinaFs economy growth included the end of the commune system in farming.&. -eng Ciaoping introduced began a series of reforms known as gaige kaifang.

In &77=. $hinese authorities have defended this combination as Jseeking truth from factsJ. Second.777 km of railways in 5@'9. like the Kast !sian 3igers.=& per U dollar by 5@@. By &77=. with /9. socialist $hina had the worldDs brashest capitalist economy.• 5 more reasons behind the rise of China First. -eng Ciaoping liberalised the economy without changing the political system.. for most of the post-reform period. !fter the U . $hina. tarting from 5@/'.97 per U dollar in 5@'7 to "<B '. $hinese annual investment of 5. was maintained at "<B '. pursued a policy of state-sponsored capitalism in the Lapanese style.. it is the pursuit of capitalism with a communist political system. $hina followed an e%change rate policy designed to promote competitiveness. there were 547 known dollar-billionaires in $hina compared to &. Hith only 99. Fifth. annual average non-financial M-I in $hina was about I=7 billion during 5@@@-&77'. relative to India. as a proportion of G-?.. in India. $hina is the second-largest M-I recipient in the world. per cent in infrastructure such as power. 3he pace of accelerated investment in physical infrastructure is illustrated by how.777 km of railways. irrigation and telecom was almost three times that of India. 3here was a pronounced reliance on state-owned enterprises. in sharp contrast to Lapan. Fourth. albeit in a much more accentuated form. !ccording to the &77@ annual 0urun "eport. . drinking water. $hina ramped up its rail network. relying mostly on M-I.777 km+. <uch of $hinese e%ports are by foreign-owned firms. only four of $hinaDs top &9 e%porters were $hinese companies. $hina had overtaken India which had =. Third. In &77/. transport. $hina became the factory of the world. according to the Kconomist. $hina had a smaller rail network than India *=&. $hina invested heavily in physical infrastructure. 3he renminbi which had been rapidly devalued from "<B 5. Hay back in &777.777 km.&/ per U dollar from 5@@/ to &779. Hhile M-I inflows into $hina from 5@/@ to 5@@@ amounted to I47= billion..

& trillion. 3he retail sales figure isnFt a perfect pro%y. He also saw strong growth in industrial production *I?+ and power generation both were up more than 5= percent on a year-over-year basis in October. -emand pull inflation demand-pull occurs as suppliers try to capitalize on the e%cess demand which cannot be met via e%isting production constraints. ffects of an overheating economy in general is generally preceded by lower than average economic Overheating growth. 3hese higher prices tend to reduce aggregate demand and e%ports *since goods and services become more e%pensive abroad+ leading to reduced consumption. which in tandem with decreased consumption. 3he service industry is the fastest-growing sector . Second! structural changes happen to domestic economy. 2.It moved to a managed float in Luly &779. 0ousing starts were up more than 97 percent for the second straight month. and in the process.@( in the first three months of the year. but it is the best available indicator of overall consumption because it does include sales to consumers and not Eust purchases made by the government.'& in <ay &77@. "etail sales rose 5=. First! consumption continues to be strong. In the situation of China a) On the positive side It was revealed that $hinaFs economy. $hina has had to intervene heavily to prevent the renminbi from appreciating. ii. which is the worldFs third largest. $hina is transitioning to a consumption-based workforce. HeFre seeing a transition to a service-related economy. Effects i. the renminbi gradually appreciated to "<B =. e%panded at an annualised rate of 55. has accumulated over I&. reducing investment e%penditure. and remained more or less unchanged thereafter. can lead to economic recession. $entral banks often simultaneously tighten monetary policy in response to increased inflationary pressures.& percent in nominal terms during October and have been accelerating.

month-to-month fluctuations like this are to be e%pected since private investment is dependent on how willing $hinese citizens are to put their own money at risk. Third! $hinaFs stimulus e%it strategy is simple--create a strong economic base that the private sector can launch from. weFve seen loan numbers come down. the government will not hesitate to ramp up activity should the private investors become risk-averse. the government moved 1uickly to hit the brakes. Given the environment. 3he problem in $hina is e%cess savings and not enough spending. 3hereFs a longstanding pattern of new loans slowing down during the second part of the year as banks have historically rushed to meet government-mandated loan 1uotas. Fifth! $hinaFs Oong-3erm Goals "atch match u# $ith Short%Term &oals . Hhile U. Once the figures grew too large. bank savings and propertyNmakes it easier for the government to institute controls. 3he short-term and longterm challenges are the sameNto get people to spend more. 3he magnitude this yearFs slowdownNtrillions of yuanNis evident of BeiEingFs dedication to prevent a bubble from forming. 3his is why the government has spent such a large amount of the stimulus on areas that benefit the domestic marketNthatFs where it thinks the economy is headed. !fter private investment surpassed that of stateowned enterprises in eptember. the size of the service sector is directly correlated to the amount of goods and services an economy consumes. !fter lending more money over the first five months of &77@ than all of &77'. Kven though BeiEing is determined to wean $hinaFs economy off of government stimulus. regulators have many holes to plug in order to keep the economy afloat. the limited number of investment options available to $hinese citizensNbasically stocks. the two flip-flopped during October. Fourth! government controls on flow of money. .*roughly &7 percent faster than construction+ and now accounts for one-third of $hinaFs workforce. In general. .

pdf"to"nghi" la"bai"bao"nay"lay"t%"nam"/00:"="con"hop"ly"n%a"(i"gio"&'"co"rat"nhie%"cac"nha%"may " . dollar are not new. !lready the worldFs third-largest economy on a nominal G-? basis and second-largest based on purchasing power parity. which is the line set by the government as an inflation warning. 3he upward pressure on food prices which had been particularly sharp. . it rose year-on-year by over 9(. and $O ! e%pects BeiEing to resume a 9 to / percent annualized appreciation process about midway through &757. b) On the negative side <eanwhile. the electric power shortage in the summer reached 47 million kilowatts."ecent signals that $hina will begin letting the yuan appreciate against the U. resulting in a serious situation that was called the worst electric power shortage since the 5@'7s. period.@(. Kven though the electricity generated increased by 5. and over the entire year food prices rose 4. http://www.meti. ince &774. BeiEing has stated a gradual appreciation of the yuan will benefit the economy. the $onsumer ?rice Inde% *$?I+ moved from minus figures into positive territory. in recent years the $hinese economy. Second! there is also growing shortage of electric power as a result of rapid economic growth. whose growth is heavily dependent on the e%pansion of investment has faced various negative effects including negative effects which are causes of concern in the future. Mor several years. and over the Lune to eptember period of &77.9( year-on-year for the Lanuary to eptember &77.P/. theyFre leading it. was alleviated somewhat by increased food production from summer &77. First! there is increasing pressure to push up $?I. but thereFs only one $hina. and increased living costs *utility costs+ reflecting increases in energy demand..</.go. 3his is due to an increase in food prices caused in part by reduced production of grain and oilseed crops due to natural disasters. 3he first of such negative effects can be identified as the upward pressure on prices.9p/english/report/downloadfiles//00:&rade. the $hinese arenFt making a break from the back of the pack. "apid economic growth may be common in emerging economies.

"Cio"la"/0. !midst e%panding investment." &at"nhien"(iec"tang"tr%ong"?%a"nhanh"se"gay"ra"demand"cho"electric"tang"cao"nh%ng"=" den"noi"shortage"tram"trong"nh%"(ay. the ?eopleFs Bank of $hina warned that there is a potential risk that a bubble will form in the property market.@++ @2./ percent Eump in <arch that was the highest since the survey of residential and commercial prices in /7 cities started in Luly &779. !s $hinaFs central bank has pointed out.c-=inh-t@E.@++@+. but there is a possibility that loans especially for property development were provided under inade1uate bank inspections. these measures instead worsened the supply-demand balance and accelerated the increase of property prices. -epending on future trends in the economy and property market. Given that a disproportionate amount of bank loans has concentrated in the property sector.ng-di@E.com//0. increased by &'.5( year-on-year and remained at a high level compared to overall fi%ed asset investment for the same year *&9. due to a comparatively low base in &77@ and a time lag for tightening real estate policies to take effect. !ccording to the 6ational Bureau of tatistics *6B +.wordpress.@++@8.@+A@+. ?roperty prices are also rising in light of this active investment in property development. -ay nua.@+A@+B-b@E.n-l@E. there is a concern that new non-performing loans will be generated.0>"ma"minh"toan"nhac"den"nam"/00*" nghe"(e"="hay"cho"lam>"nhi?":- Third! property prices are rising.@++@27n-nang/. Investment in property development in &77.&5( or . Fourth! there are concerns about e%panding nonperforming loans. minh sua so lieu cua nam &757 Third! property prices are climbing at markedly rate.0/0:/0:/tr%ng-?%@E.'( )O) in !pril. $hinaDs property prices rose by a record 5&. the !pril increase topped an 55. 3he proportion of nonperforming loans among maEor financial institutions at the end of &77.dien " hat " nhan " co " cong " s%at " lon> " co " the " san " x%at " ra " l%ong " dien " rat " lon" http://trinm. individual housing and automobiles. it is possible that because supply-side regulations were drastically strengthened through the governmentFs measures to tighten investment even though there was vigorous demand for property.c-tang-?%y@E. banks sharply increased loans for purposes including property development. was 54.'( year-on-year+.

. . In the process of e%panding investment. 3he ?eopleFs Bank of $hina has underlined the concern that the risk involving property developers will inevitably lead to a risk in banksF credit risk.=( lower than at the end of the previous year.. the overheating economy in recent years and resulting government measures for fiscal tightening have a maEor impact on loans to small and medium enterprises including private sector enterprises and individually-owned enterprises. aluminum. Fifth! there are concerns over issues including overproduction and growing inventory for steel. <eanwhile. these markets e%perienced either a succession of new market entrants or increased scale of production. because of poor lending practices. 6on-performing loans in $hina have risen into the :trillions of renminbi. automobiles and cell phones.

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