C For the Chinese, the years of easy credit are over as Beijing curbs lending on fears of excess cash in the system and inflation. According to data released today, China's economy expanded at 8.7 per cent in 2009, with growth accelerating in the final quarter. At this rate China is on course to overtake Japan and become the world's second-biggest economy when Japan's figures are released next month. In Greece, meanwhile, negotiations with the EU over its soaring budget deficit are at what European Commission President Jose Barroso calls a "delicate moment". The Greek prime minister denies a bail-out is being prepared. So which is the riskiest bet? A Bloomberg poll finds three out of 10 investors belive China is second only to the European Union in posing the greatest downside risk. Of the EU members, Greece is considered the riskiest. Global equity markets, which all fell yesterday, are sensing that Beijing's decision to slow lending places the trajectory of a global economic recovery in jeopardy. Fears of a Chinese consumer spending and property bubble are growing. "The question now is not whether we need to control credit and money supply, but when and how to control it," explained Chen Xingdong, chief China economist at BNP Paribas. Liu Mingkang, chairman of the China Banking Regulatory Commission, said Chinese banks needed to prepare for "the wrong kind of borrowers and the wrong kind of weather". But since the rest of the world is counting on Chinese consumers becoming a significant driver of global economic growth this could turn out to significantly bad news. "The moves in China suggest that near-term global growth might be slower," said Alan Gayle, a money manager at RidgeWorth Investments, told Bloomberg. "On top of that, we've had continued disappointing earnings from the US financial sector. It seems that the easy money has been made after the global rally we've had." In Europe, meanwhile, the prevailing belief that Greece has yet to come clean over the extent of its borrowing has caused the euro to fall to a five-month low against the dollar. The markets believe Greece will struggle to sell the debt it needs to fund the European union's biggest deficit. European finance chiefs are playing an advanced game of chicken with Greece. They cannot impose fiscal discipline; nor can they easily bail out the Greeks - which is more than four times over its debt to GDP limit - without sending the wrong message to other European nations advancing in the direction of default. Constantinos Bacouris, chairman of the Greek branch of Transparency International, told the BBC that Greece's problems start with corruption and tax evasion. "Corruption and our economic difficulties are bound together," he said. "We estimate that 30 per cent of GDP is not declared. We would be in a much healthier situation if our citizens declared all their income." With global economic sentiments still fluctuating wildly, who benefits? Almost six out of 10 Bloomberg poll respondents are now optimistic about America. In October, a majority were pessimistic. "American consumers are regaining confidence, and with that alone, there should be no impediments for current business to resume the growth of the past decade," says Drew Beatty, an analyst at Wells Fargo in Dallas. China and Greece upset the world economic recovery
Curbs on lending in China could slow world recovery; Greece on edge of default
Friday 22 January 2010
LAST UPDATED 11:11 AM, JANUARY 21, 2010
hina and Greece, two countries with no obvious common bond, are on the cusp of finding fellowship in the creation of serious problems for the global economy.
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