China is full of contradictions. It is vast: yet much of its land is unproductive. The population, at 1.3 billion, is the world’s largest: but only a small percentage have disposable incomes. The rate at which the economy is opening contrasts with political repression. A booming economy is threatened by a burgeoning budget deficit. It’s market potential is almost unlimited: it’s a great place in which to lose big sums of money. China is the economy of the 21st century: and it’s headed for an economic catastrophe. All are true. Examples abound to support each and every contention. Consider, for example, the following:

The Japanese – Two views: Just to show that the move of manufacturers away from high-cost countries to China is not all one way, Japanese electronic giant Sony announced plans to switch production of its export-oriented video cameras from Shanghai to Japan to boost efficiency in manufacturing. That, on the face of it, marks a reverse of the trend by which Japanese manufacturing has decamped to China. It will probably remain an exception but, as a Sony spokesperson explained, "We have decided to shift our analogue and digital video camera production base, which makes products for the US market, back to Japan to improve our supply chain management system." She added that at present Sony has to import many key components from Japan, which are assembled in Shanghai and then shipped to the US. "That is very time consuming," she said.

At the same time several leading Japanese firms announced they are shifting production lines to China from Southeast Asia to cut costs and consolidate their assembly operations.

Technology giant NEC is planning to close a personal computer line in Malaysia and move it to China. One reason quoted was that China was closer to Japan, which made it a more convenient location where it was often cheaper to assemble whole products.

Seiko Epson, which has produced scanners for personal computers in Singapore since 1995, will close a production line in September and transfer some production to China as well as another plant in Singapore. A Seiko Epson spokesman said: "Labour costs are cheaper in China and also the technological know-how is high."

Camera maker Minolta also plans to move a camera assembly line from Malaysia to a factory in Shanghai by March next year. It is a cost cutting decision. Japan's Minebea, the world's largest miniature ball bearing parts manufacturer, moved a measuring equipment production base to China from Singapore in February because it was cheaper and many of its customers had moved to the mainland.

That possibly underscores an additional strength of moving to China. It’s a virtuous circle. As more companies shift production there, so do more associated industries follow them. There may be risks in ‘putting all one’s eggs into a single basket’. But against that is the consideration that China still has vast reserves of space and labour available.

Crisis? What crisis? China's budget deficit is a cause of concern and these were raised further when the government announced fiscal revenue rose just three percent, year on year, in the first five months of this year - far off the 8.1 percent full-year target . The thin inflow, compounded by faster-than-expected outlay growth, raises the spectre of a widening fiscal deficit this year, already projected to surge 19 percent over last year to a record US$37 billion. Central government expenditures were up 31.4 percent year on year in the first five months, beating the budgetary growth target of 10.1 percent.

The dramatic revenue slowdown, following a run of double-digit growth, is likely to force Beijing to review years of expansionary fiscal policy, and highlight the urgency of improving tax collection. State fiscal revenue surged 20.9 percent last year.

Taxation traditionally accounts for more than 90 percent of central government revenue in China. Value-added taxes alone were believed to have contributed up to 60 percent of Beijing's receipts. But profits of state-controlled companies, bearing a disproportionate share of tax burdens, slumped 12.9 percent over the same period of last year.

Some financial analysts are suggesting that this may prove one more nail in the coffin of the expansionary fiscal policy which has characterised Premier Zhu Rongji's term in office. Government ministers are beginning to stress the need to broaden China's tax base, which consists largely of state-controlled firms, and improve overall tax compliance.

Efforts to widen the tax net to ensure foreign-owned businesses pay similar rtes to that of local companies are being stoutly resisted.

And yet ….. China's economy continued to power ahead in the first half of the year, project estimates of year-on-year growth of between 7.5 - 7.9 percent. This would be on target for government projections. The figures confirm China as Asia's star economy having shrugged off concerns of the economic slowdown in the US and continued sluggish performances elsewhere in Asia.

Early this year, Beijing feared it could have difficulty matching last year's 7.3 percent economic growth. Strong exports, a flood of foreign investment and robust domestic demand and continued state spending helped China outshine its neighbours in the first half.

The GDP figure comes on the heels of a growing confidence in the mainland economy driven by favourable monthly macro-economic data - from industrial output to fixed-asset investment and trade - during the past few months.

Conclusion. "You pays your money: you takes your choice." Sony’s action in taking back just a small part of it manufacturing to Japan is probably untypical, but it does suggest that China can sometimes pose production problems that outweigh the benefits. The trend of manufacturers into China will likely continue.

The consequences of China’s budget deficit may be harder to escape. A downturn in the local economy might well lead to a currency devaluation – good for exporters, of course, except for those with a high level of import components. Many of the benefits of China’s accession to the World Trade Organisation would be quickly lost.

Nothing dramatic is visible, yet. The problem is guessing which of the widely divergent interpretation of events will affect you. And it’s not helped by official statistics not fully believed by even Beijing government officials.

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