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China's stimulus working – perhaps too well

Bank loans and state-led investment have reenergized the economy, and people feel more secure about their jobs. But the government has boosted spending so fast that economists are warning of stock and real-estate bubbles.

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Late last year, as a global recession snapped at China's heels, Tomer Rothschild's sales team began to sweat. Selling gym membership to white-collar workers had suddenly gotten harder.

Today, the treadmills are humming again. "Back then, people were worried about their jobs. There's much less of that now," says Mr. Rothschild, CEO of Ozone Fitness, which owns 10 clubs in Beijing.

As goes the fitness boom in Beijing, so goes China's economy. While Washington argues over the impact of its stimulus package, China's government has ramped up spending so rapidly this year that economists are warning of stock and real-estate bubbles. Beijing argues that supporting the recovery remains its priority.

One reason for caution is that China's exports continue to slide. Data released Tuesday showed that exports in July fell 23 percent year-on-year, the ninth straight month of decline.

But on the back of record bank lending and state-led investment, China's economy is accelerating: It grew by 8 percent in the second quarter, snapping a period of slowdown.

What recession? Malls, restaurants are packed.

Far from being felled by the global slump, many Chinese consumers believe that the good times are still rolling. Nearly 5.4 million cars were sold in the year to July 31, up 30 percent over last year. Leisure travel – seen as a luxury only a few years ago – is growing rapidly. Many restaurants and malls in Beijing are packed.

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