Going Too Fast?(Chinese economy)

On the big bed in their one-room apartment, Tang Lihua and his wife, Guo Jine, cuddle under a fluffy blanket as candles flicker on a night table. The couple's 9-year-old daughter is bopping around the room, lighting more candles out of boredom, and Guo is covered head to toe in pink flannel pajamas and a bright red ski jacket. A brownout has left this suburb of Changsha, capital of Hunan province, with no lights or heat for the third time in a month. Neighbors play mah-jongg by candlelight in a nearby hair salon. Shopkeepers burn bricks of coal for heat rather than close early. Sticking his closely cropped head out from under the covers, Tang, 36, shrugs, "The government has tried its best [to restore power] but it can do nothing."

The candles in Hunan are a sign that China's economy may be on the verge of a meltdown. In what some economists consider a warning sign of overheating, China is running out of steam--not to mention water, coal and electricity. In heavily industrialized southern and eastern regions, shortages have forced authorities to impose rolling blackouts in residential areas, to require all but the largest factories to cut back on manufacturing and to launch media campaigns urging the masses to conserve. Nationwide, the supply of electricity last year rose 5 percent slower than demand, dipping as much as 30 percent below demand in Hunan. By now 21 of China's 31 regions have faced shortages caused by lack of fuel or by poor government planning. And economists say the situation probably won't improve until new power plants are built.

Two decades of economic reform in China has lifted millions of people out of poverty and created a middle and an upper class that are buying cars, homes and expensive vacations. The economy is growing fast--at a rate of 8.5 percent in 2003, according to official figures; outside estimates put the rate in double digits. Recent energy shortages are just one sign that demand is starting to outrun supply. After six years of falling prices, deflation gave way early last year to inflation, which hit 3 percent in November. That rate is well within safe limits, and far short of the runaway inflation that is the classic symptom of an overheating economy. Yet the sudden turn from deflation to inflation accompanies an almost euphoric rate of government and consumer spending, largely made possible by risky bank loans. The question of whether the world's most populous country is growing too fast is now more than idle musing.

The Chinese government and many analysts deny the economy is in danger of crashing. Some analysts attribute recent price spikes to one-time events-- natural disasters that drove crop prices up, for example. "[Food] prices are rising a little, but they're still pretty low," says Yang Yiyong, deputy director of the government-affiliated Institute of Economic Research. "I think that for 20 years China's economy shouldn't have a problem growing an average of 7.5 percent a year."

But some economists are more worried. They think Beijing should try to slow things down--or risk entering a vicious cycle of boom and bust. Already there are signs that the real-estate industry is in danger of becoming saturated with investors, with prices similar to those of major U.S. cities and a lack of wealthy Chinese to buy all the luxury housing. Other sectors could be in trouble, too. For example, while industrial output overall rose by about 17 percent last year, the output of cars and ...