The world’s sixth-largest economy, grew at 8.2 per cent in the first half of the year even though the severe acute respiratory syndrome (Sars) slowed the activity in second quarter. The third-quarter growth would be torrid and full-year gross domestic product growth could be about 9 per cent analysts said. In many ways such a rate of growth is welcome. Beijing is struggling to create tens of millions of jobs for the swelling ranks of the unemployed. It is also seeking to close the gap between the rich coastal areas and an impoverished hinterland.

But there are concerns over the structure of the current growth spurt, supported by the signs of an emergent bubble in the property, aluminium, steel and, possibly, automobile sectors. Beijing, has already tried to curtail bank lending to the property sector, is considering further restrictions on the real estate projects. An increase this month in the reserve requirement ratio — the amount of money commercial banks must lodge with the central bank — from 6 to 7 per cent appears to have curbed the credit growth. But analysts were divided over whether it would be enough to rein in the property bubble.

Official figures showed that the industrial output climbed 17.1 per cent in August, against a 16.5 per cent rise in July and a 16.9 per cent expansion in June. The production figures were boosted by strong demand for steel, cement and other construction industry inputs. Exports in August were $37.4 billion, up 27.2 per cent from a year ago. The rate of increase, however, slipped to its slowest pace since August 2002. Imports rose 27.3 per cent over a year earlier to $34.6 billion, according to the commerce ministry.

Although the $8.9 billion surplus in the first eight months was down by 50 per cent from the same period a year ago, the rise in the single month figure was expected to lure further attention to the vexed issue of whether China should allow the renminbi to appreciate. Chinese officials told that they had no immediate plans for a revaluation or appreciation of the renminbi but did acknowledge a long-term intention to introduce more flexibility into the mechanism by which the currency’s value is determined.

After six years of flooring the monetary and fiscal accelerators to promote the growth, authorities are suddenly sending signals they’re worried that parts of the economy are growing too fast, particularly bank lending to the property and cyclical industries like the steel and cement. New bank loans over the first seven months of 2003 exceeded those made in all of 2002, prompting the People’s Bank of China on August 23 to raise the amount of cash it requires banks to keep on hand — and thus unlent — to 7 per cent of the total assets, from 6 per cent.

With the exception of property prices, there’s little inflationary pressure in China — inflation is around 0.6 per cent. Many analysts say the real concern about the China’s economy is not that it’s overheating but that it’s over-investing. Its dysfunctional financial system is misallocating, and often squandering the capital. Banks are lending to several cyclical industries the like real-estate and property — which now make up an all-time high of 17 per cent of the total bank loans — plus the steel, cement and the cars. Some of this is productive and some serve to improve the living standards, but the scale of investment raises concern.

China’s ratio of gross investment to the GDP is an unusually high 42 per cent, compared with the ratios around 20-30 per cent in most other developing Asian countries. We, the economist are really seeing now is the overinvestment. The implication is that most investment returns are low, many analysts see the credit tightening as an attempt to keep the banks from extending themselves too far. At the same time authorities are trying to protect the banks from themselves, there’s little sign that the government’s fiscal expansion will cease.

Malaysia’s economy grew by 4.4 per cent in the second quarter from a year ago despite the outbreak of severe acute respiratory syndrome, which depressed other Asian economies. Analysts said the strong performance might lead Malaysia to revise its full year forecast from 4.5 per cent to 5 per cent making it one of the region’s most robust economies this year. Malaysia had a growth rate of 4.2 per cent in 2002. The economy benefited from rising commodity prices for palm oil and oil and gas, while domestic demand was boosted by a M$7 billion (US$1.8 billion), economic stimulus package in late May and the central bank’s decision to cut interest rates to a 10 year low. Business confidence has also improved, with new investments rising by nearly 60 per cent in the first half from a year ago. The central bank also revised its estimate of first quarter growth in gross domestic product to 4.6 per cent from 4 per cent.

While the underlying conditions favour an improved outlook, the low interest rate environment will remain to ensure that the recovery is firmly entrenched. Economists said the economy could slow if commodity prices, such as those for palm oil, fell. But Malaysia appears to be well protected against a repeat of an outflow of capital that plunged the economy into crisis in 1998 since it’s foreign reserves are at a seven year high of $38 billion. The Malaysian government is apparently ready to scrap a controversial decades old policy that forced companies listed on the Kuala Lumpur Stock Exchange to ensure that bumiputras, mainly ethnic Malays, held at least 30 per cent of their stock. But changing the rules could take time as government agencies work to fine tune the details. Malaysia has long required a company seeking to go public not only to allocate at least 30 per cent of its equity to bumputras, but also make sure that level of ownership is maintained even if original bumiputra shareholders sell their stock.