kroeber

Some of the new highways may be empty, but Kroeber, the editor of the China Economic Quarterly, said the high-speed trains are mostly full.

"People's ability to consume depends on their wages, " which have been rising by about 10 percent a year in real terms, Mr. Kroeber says.

Companies making those things, however, will not be able to operate in traditional ways, Mr. Kroeber warns.

In the developed world, Kroeber notes, a country's capital stock tends be a bit more than three times the size of GDP.

Kroeber declares that China's real per capita consumption growth in recent years is "the fastest of any country in history" .

Even then, Kroeber said, he had a hard time imagining that China would find a way to make use of all of its new construction.

Arthur Kroeber of GaveKal-Dragonomics, a consultancy, thinks China will get within a "reasonable range" of its 20% goal.

The crucial difference between these two arguments is location and this leads back to Kroeber's thesis of two Chinas.

Low-end manufacturers stayed open by boosting efficiency, says Arthur Kroeber, head of the Dragonomics consultancy.

These moves are only the beginning, says Mr Kroeber.

"What does this do? " asked Arthur Kroeber, managing director of Dragonomics, an economic research consultancy in Beijing.

Arthur Kroeber, managing director of Gavekal Dragonomics, an economic consultancy, has an explanation.

"Our advice is: calm down, " says Arthur Kroeber, head of Dragonomics consultancy in Beijing. "China's economy is basically in fine shape. "

Mr. Kroeber does not expect the RMB to gain enough value to cause "large-scale havoc" for exporters.

However, as Arthur Kroeber, editor of China Economic Quarterly, points out, it represents an important statement of intent.

The elimination last month of the value-added tax for capital equipment is a case in point, says Mr. Kroeber.

But Mr Kroeber believes the problem will sort itself out over time as university students lower their expectations.

If officials are not careful, Mr Kroeber warns, this could depress prices for low-end housing even further.

"They haven't gotten all the way to a coordinated transportation ministry, " Kroeber said.

'China has a trust deficit, ' Mr. Kroeber said. 'Most countries don't trust the motives of the Chinese government and Chinese companies. '

But if Mr Kroeber is right, that horse may now have been quietly released.

"The writing is on the wall for the model of using vast armies of workers paid $100 to $200 a month, " Kroeber says.

"When you're the No. 2 country in the world, you can't make the argument any longer" that China can be a follower, Mr. Kroeber said.

Mr Kroeber estimates that only 7% of total investment is directly linked to export production.

'In our opinion allowing more domestic inflation is a better policy than an aggressive exchange-rate adjustment, ' Kroeber writes.

"My view is they absolutely don't need it, " Mr. Kroeber said of the one-child policy.

Kroeber and company are not foretelling doom; rather they are calling for cool heads.

"They thought they were fine-tuning, " says Arthur Kroeber at Dragonomics, a research firm in China.

In March Arthur Kroeber of GaveKal Dragonomics, a consultancy, declared the "end of surplus labour" in China.

"China doesn't have a middle class, " said Arthur Kroeber, director of Dragonomics Research and editor of China Economic Quarterly.

This, says Mr Kroeber, implies a big retreat from China's state-led model of credit allocation.

What Kroeber urges us to remember, though, is the sheer scale of China.

"As far as significant retailers are concerned, out of China's 1. 3 billion people, 1. 2 billion simply don't count, " said Kroeber.

"You have strong investment demand in China and weak consumer demand in their big markets, " said Arthur Kroeber, of Dragonomics.

Arthur Kroeber of Dragonomics, a research firm in Beijing, estimates GDP growth was around 5% in 1998-99, for example.