Positive first quarter results are not a sign the country is out of the woods yet. The recovery is largely due to the stimulus package and massive credit infusion which are likely to generate many “bad loans” and inflation over the next few months, causing the economy to run out of steam.

Beijing (AsiaNews/Agencies) – Premier Wen Jiabao told the state council that China’s economic recovery is still not stable. Although there were some positive signs here and there, he warned that “grounds for the country's economic recovery are not solid enough yet, as circumstances both at home and abroad remain grim.”

At the state council meeting, he mentioned “positive changes” in the first quarter like higher investments, investment, consumption and industrial output, abundant liquidity in the banking system.

The National Bureau of Statistics yesterday reported that growth was 6.1 per cent in the first quarter.

Just a month ago Wen had told the National People’s Congress that China’s growth would reach 8 per cent this year, a rate seen as essential to maintain a stable market and employment levels.

Rating agencies Goldman Sachs and Moody welcomed yesterday’s figures, celebrating the “recovery” with China coming to the “end of the tunnel.” But economists are divided over China’s real possibility of meeting the 8 per cent target after decades of double-digit growth.

Various experts view the first quarter rebound as the consequence of the government’s stimulus package which included a massive increase in bank credit, with more than 5 trillion yuan (US$ 725 billion) in new loans extended over just the past four months.

Not surprisingly, the authorities are getting nervous that such headlong loan growth will fuel both a sharp rise in bad loans and a surge in inflation.

In that case, the current small rebound could soon run out of steam.

• china
• wen
• jiabao
• economic
• recovery
• stimulus
• package
• inflation