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OVERVIEW
China - Balances and balancing act
December 2006
The China phenomenon has been a balancing act between successful private sector ventures and allowing personal and political freedoms. Foreign investment, driven by low interest rates, has aided this growth. And much of the industrial growth has been done with total disregard for the environment. As pressures mount, the Chinese government has had to act. This has been done by dampening the level of economic activity via interest rate and currency adjustments as well as limits on credit creation. However real changes to the Chinese economy need to be structural. Domestic consumption needs to rise and reliance needs to move away from exports. Authorities are looking at an increase in wages to support the structural changes required. The government has also indicated that there is an intention to boost environmental safeguards.
China's demand for energy will also cause tension. By securing a supply of energy from Iran, China has found itself stuck between Iran and the West.
The USD also has policy implications. A weaker USD makes imports more expensive to US consumers thereby reducing the US trade deficit. However it could also impact on US inflation.
Overall, China needs to take steps to ensure that it becomes less vunerable to exogenous economic movements. 
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