There may be a downturn in the United States but it is, at the moment, difficult to see a knock-on effect in China. China’s factory and property spending rose 24.3 percent in January and February, maintaining pressure on Premier Wen Jiabao to prevent the world’s fastest-growing major economy from overheating.

Fixed-asset investment in urban areas rose to RMB 812.1 billion yuan ($115 billion) from a year earlier, the statistics bureau said today. That was more than the 24 percent median estimate of 21 economists surveyed by Bloomberg News and the 23.4% pace in January and February 2007.

The worst snowstorms in half a century failed to prevent a 33% jump in spending on real-estate development.

China may hasten gains by the renminbi, raise interest rates and increase banks’ reserve requirements after inflation in February accelerated to an 11-year high.

Sherman Chan, an economist at Moody’s Economy.com said, ‘China’s economy is still very strong. The biggest challenge for policy makers this year is to cool inflation and at the same time to sustain growth and employment.’

A Bloomberg News survey of economists this week suggests rates and reserve requirements will rise this year. The renminbi will gain 12% versus the dollar in the next 12 months, compared with a 7% increase in 2007, forward contracts indicate. Currency appreciation cuts import costs. (You could write this another way. The dollar will lost 12% compared to the yuan. This would seem damned near certain.)

The acceleration in property investment from the 30.2% pace for all of 2007 is even after the government tightened land-use rules, raised mortgage costs and increased down payments.

No one nows what the goverment will have to do next in order to control these increases. Something quite drastic would be needed. Probably involving boiling oil.

China’s economy, the world’s fourth largest, grew 11.4% in 2007, the fastest pace in 13 years.

The People’s Bank of China lifted borrowing costs six times in 2007 and has pushed banks’ reserve requirements to 15%, the highest ever. The key one-year lending rate is 7.47%. What is there left to do with what could only be thought of as a runaway economy?

Our illustration is of two confused investors. We know the feeling well.
Source: Bloomberg