As the rest of the world is troubled by a lack of momentum in business recovery, Chinese economic officials are finding themselves facing quite a different conundrum: Is their economy outperforming the others' by too much? Is it running too fast, too hot?

The questions have sparked a heated debate among officials and researchers, especially after the gross domestic product (GDP) recorded a staggering 8.2 per cent growth in the first half of the year, despite the negative effects of SARS.

Fixed-asset investments surged by 31.3 per cent year-on-year by June - and the force backing up the growth was a sharp increase in bank lending - outstanding loans expanded by 22.9 per cent by June; and M2 - the broad money supply measure that includes cash in circulation and deposits - was up 20.8 per cent.

The central bank has obviously sensed some risk. At a recent bank conference, Zhou Xiaochuan, chairman of the People's Bank of China, warned of the likely emergence of inflation following what he called an "excessive growth in money supply". The central bank is already slowing down the approval procedure on real-estate loans, with similar curbs planned for auto loans.

Fan Gang, director of the National Economic Research Institute, said that the prime concern for the Chinese economy this year is not growth rate, but preventing it from overheating.

He said the GDP growth would have been a record high in the first half year of the year had it not been SARS, based on the fact that the economy is being fuelled by huge increases of investment in fixed assets since the second half of 2002.

The authorities should turn their attention, Fan suggested, away from deflation, which is no longer the economy's focal problem. Instead, he said, they should start to take precautions against inflation because some early signs are already visible. It would be too late to wait until inflation reaches the runaway stage, he added.

Fan suggested that the macro economic policy be tweaked to steer the economy clear of sharp fluctuations.

But those who disagree that the economy is over-heated say over-investment is a feature only in certain regions and industrial sectors, and is not a nationwide phenomenon.

Yao Jingyuan, chief economist and spokesman for the National Bureau of Statistics, dismissed the issue of an over-heated economy at a recent press conference. He said the high growth was a result of better efficiency and did concede that the government should pay more attention to repetitive and wasteful investment in some cases. But overall, discussion about an overheated economy is unwarranted.

As the central bank repositions itself to avoid further financial risk while maintaining a stable supply of funds for thirsty businesses, it has already met with complaints that it was slowing down the economy's momentum of growth.

Real-estate developers are the most vocal critics, joined by others arguing that since the nation has just emerged from the SARS crisis, it's still too early to put the brakes on money supply.

The speed of economic growth should not be used as a major criterion for inflation or deflation, said Zheng Chaoyu, director of the Economic Research Institute of Renmin University of China.

He insisted that 8.2 per cent GDP growth in the first half year was normal; in fact, China could easily sustain such a growth rate during the 2001-2005 period at an annualized 8-9 per cent based on present economic circumstances.

The economy is in a cycle of high expansion, which will probably last just for the next few years, said Zheng, adding that people should not fall into a panic about the good results that they themselves were responsible for.

China should continue to speed up its effort to accumulate wealth before it becomes a nation of an aging population, he advised.

The basic fiscal framework that Beijing adopted at the beginning of the year should therefore be untouched, he added.

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