Overinvestment In China Becomes A Concern

There seems little doubt that China again this year will reach inflation-adjusted GDP growth of 8%, the generally considered rate of sustainable development. But Gerard Lyons, chief economist and group head of Global Research at Standard Chartered Bank, London, worries about the amount of investment going into China, now about 40% of GDP. Recalling the Asian currency crises of 1997, he reminded a London Plastics Industry Conference on Feb. 22, "you can have too much of a good thing."

And on the controversial issue of the value of the Chinese currency, the yuan, Lyons expects gradual change, with the stability of the domestic economy being the primary concern of the Chinese government. Specifically, he forsees the band in which the yuan moves against the U.S. dollar widening by about 3% during the next 6 to 12 months.

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