主题：【中国经济】过热吗？老外怎么看。 -- 西风陶陶

Andy Mukherjee is a columnist for Bloomberg News. The opinions expressed are his own.

Is China an Investment Goldmine, or Minefield?: Andy Mukherjee

Jan. 27 (Bloomberg) -- Is China a foreign investment goldmine or a minefield?

That was the topic of a panel discussion last Thursday in Davos, Switzerland. Put another way: Is anyone going to make any money by investing in China?

All the investor sentiment expressed at that World Economic Forum discussion favored the goldmine scenario, none for the minefield.

Carlos Ghosn, president of Japanese automaker Nissan Motor Co., said China is the second-most profitable market for carmakers, after the U.S. ``If you don't manage well your operations in China, you're not going to be making any money,'' Ghosn said. ``But then, you're not going to be making money anywhere.''

For overseas investors, ``the best time to go into China is now,'' said Victor Chu, Chairman of Hong Kong's First Eastern Investment Group. Foreign investors in China will gain from an eventual appreciation of the Chinese currency, which is pegged to the U.S. dollar, Chu said.

``The time is right to do big investments in China,'' echoed Ulrich Schumacher, chief executive at Germany's Infineon Technologies AG, Europe's second-largest semiconductor maker, which plans to earmark 30 percent of its investments over the next three years to the most-populous nation.

``China ranks among top three or four markets for us in profitability,'' said Dinesh Paliwal, an executive vice president at ABB Ltd., Europe's biggest electrical-engineering company.

Is China Overheating?

Amidst the surfeit of optimism, someone in the audience asked: What's the risk that the red-hot Chinese economy is overheating? Is there too much investment going into China, than it can absorb? Will interest rates have to rise, to beat back inflation?

It's a question that has implications for the global economy. China is the world's fastest-growing market for cars, and the biggest market for cellular phones. It consumes about a quarter of the world's steel, a third of oil, and half of cement. China has been a bigger contributor to global growth than the U.S. for the past two years.

Paliwal said he doesn't take the inflation threat too seriously as China has just come out of a long period of falling prices. There's no oversupply. Products being churned out by ABB's China factories, even export-oriented units, are being lapped up locally.

Wrong Alerts?

So have economists at Morgan Stanley, Credit Suisse First Boston and Lehman Brothers -- who have put out ``China overheating'' alerts -- got it all wrong? Or, is this kind of exuberance just the proof that investors are overstretching themselves in China?

``China is experiencing a round of hyper-investment,'' CSFB researchers, led by Jonathan Garner, managing director of the firm's global strategy division, said in a Jan. 5 report.

``We expect fixed asset investment growth to fall sharply,'' dwindling from 23 percent annual growth at present to almost zero at the end of 2005, say the CSFB researchers, who predict the Chinese central bank will start raising interest rates from mid- 2004.

``China faces a deflationary excess,'' says Andy Xie, chief economist at Morgan Stanley Asia Ltd. ``A lot of companies may become unprofitable and we could see another wave of bad debts.''

Brakes Not Yet Needed

The point of departure between the enthusiastic words coming out of Davos, and what most brokerage economists in Asia are telling their clients, is inflation -- the telltale sign of an overheating economy. That's still moderate in China, even as economic growth in 2003 soared to 9.1 percent, the most in six years. Consumer prices rose 3.2 percent from a year earlier in December. That too, because of short-term food shortages.

If inflation is still benign, where is the proof of overheating? And why will the Chinese authorities want to raise interest rates? Li Deshui, a director of China's statistics bureau, said in Beijing that ``there's no need yet to slam on the brakes.''

There may be a powerful need -- unsustainable money supply, which grew 20 percent from a year earlier in December, compared with a 17 percent rise in the same month of 2002, and 14 percent growth in December 2001.

So far, the surge in money supply is non-inflationary, because it's feeding more of investment, and less of consumption.

Bigger Risk

Overcapacity is leading to price wars. Average car prices in China fell 7.7 percent in December from a year ago. Even so, with commodities like steel beginning to become costlier, the risk of bankruptcies may be rising. China may tighten interest rates and settle for slower growth, because it can't afford bankruptcies when the bad-loan ratio at its state-owned banks is 45 percent, according to Standard & Poor's estimates.

``The bigger risk is that the investment boom continues, raising the risk of a hard landing further out,'' Lehman Brothers economist Robert Subbaraman said in a report last Friday.

It might all be turn out to be so much of brouhaha. Hong Liang, a Hong Kong-based economist at Goldman Sachs Inc., says overheating of the Chinese economy may be a medium-term issue, nothing to fret about this year, or the next.

Even then, investors may do well to keep in mind that China's new year, which got under way as the Davos discussion was taking place, is the year of the monkey. And in the year of the monkey, anything can happen.

Last Updated: January 26, 2004 12:41 EST