Cracks appear in China's economic model

AS THE United States and Europe struggle with debt crises, China's economy appears in robust health, but analysts say its growth model is too dependent on investment and cannot be sustained.

Sitting on foreign exchange reserves worth nearly US$3.2 trillion (S$3.9 trillion) and with breakneck growth of 9.5 per cent in the second quarter, the world's second largest economy appears to have breezed through the global financial crisis.

'Clearly China is becoming a larger percentage of the world economy and its growth rate is higher than the developed world,' said Fraser Howie, co-author of Red Capitalism: the Fragile Financial Foundation of China's Extraordinary Rise.

'It is becoming stronger as a result of that but I would argue that much of that strength is misleading,' he told AFP.

When the global economic crisis hit its huge export industry in 2008-9, China unleashed a torrent of credit to finance new highways, high-speed railways and real-estate projects, in a bid to stimulate domestic demand.

Now, experts warn China's growth has become too reliant on investment.