China's GDP up 8.9 percent and no one knows why

China's GDP rose 8.9 percent in the third quarter and there are plenty of arguments, none of them conclusive, about what caused the rapid improvement.

Clearly one cause, if not the major cause, for the recovery is the Chinese $585 billion stimulus package. For a nation with a $4.2 trillion GDP it represents a fortune spent on developing the country's infrastructure, new building projects, consumer spending and investment. But like all stimulus packages, it is temporary, and some economists worry that it has worked too well, creating bubbles in sectors like real estate and the equity markets. There is speculation that the central government could rein in its contribution in order to prevent inflation.

China may also be getting the unexpected benefit of Western economies that are recovering faster than anticipated. GDP appears to have improved slightly in the U.S. and most of Europe in Q3. If that trend continues, the demand for Chinese goods may pick up. Industrial production was higher by 13.9 percent compared to the same month last year, an indication that demand for manufactured goods may not have been entirely driven by "artificial" stimulation.

There are two ways to look at China's return to rapid growth. One is that the central government has done its stimulus work unusually well. The other is that business demand in the wealthy nations is actually beginning to improve.

Douglas A. McIntyre is an editor at 24/7 Wall St.


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