Beware the risks of an overheated Chinese economy, BNZ rural economist Doug Steel is warning exporters.

Listing possible "humps and bumps" in the forecasted 10 per cent growth in China's economy over the next two years, Mr Steel says it is possible that not all of Chinese growth has been of "solid quality, or sustainable".

"In some respects the Chinese economy might even be overheating already," he says in BNZ's latest rural report.

"Inflation, for example, is on the rise, although not yet high. Certainly, rapid property price appreciation is becoming a concern. Strong loan growth and the money supply expanding at an annual rate of well over 20 per cent bring risks."

He points out that Chinese authorities have been trying to temper growth over recent times to prevent future instability.

Meanwhile, fiscal deficits and disappearing trade surpluses raise questions about the strength of future growth, he says.

"Also, much of Chinese recent economic growth has been driven by investment. Such massive investment brings the risk of capital misallocation and rising non-performing loans."

Mr Steel says the bank is not forecasting an economic correction in China. "But we are conscious of the increasing importance of the Chinese market to New Zealand exports and the rise in risk that inevitably comes with market concentration. That is, New Zealand is more vulnerable to a slowdown in China than before, both directly and indirectly through third parties such as Australia."

New Zealand's annual exports to China have grown from $292 million in 1989 to $3.6 billion in 2009 – an average compound growth of more than 13 per cent a year. Of that, agricultural and forestry exports have leapt from $278m in 1989 to more than $3b in 2009.

China's share of New Zealand exports was 2 per cent in 1989 and is close to 10 per cent today and it has overtaken the United States as the second largest market, behind Australia.

Mr Steel also takes a look at risks for exporters in Europe, saying Greece's problems with government debt and a big deficit are faced by many other countries, although not so extreme.

Sourced from www.stuff.co.nz