Scott dismisses forecasts of overheating in China

He said concerns over the country overheating and suffering prolonged deflation and recession looked unfounded.

Mr Scott added that in the past decade its model of centralised capitalism had proved more successful than the west's liberal democracies.

"The response to the global credit crunch last year was aggressive, and now that growth targets have been achieved, monetary restraint is beginning to be implemented," he said.

"The analogy with Japan is an unfair one, and despite similarities on rapid growth of credit and liquidity, there are fundamental differences - not least on a demographic basis - in China's favour."

Despite broadly dismissing the analogy, Mr Scott acknowledges some of Japan's experience had the hallmarks of what was going on in China today.

"The boom in Japan was based on easy availability of credit and aggressive monetary policy, and growth in bank lending is a characteristic of China's growth story," he said.

"Furthermore, asset bubbles are beginning to emerge as evidenced by the strong performance of the stock and residential real estate markets. China is also an export-led economy, which, like Japan, has seen the creation of a large trade surplus and accumulation of foreign exchange reserves."

While he noted a 31 per cent expansion in bank lending last year, Mr Scott said the Chinese authorities were well aware of the risks and had already taken action.

Reserve requirements have increased twice, and the authorities have indicated further rises are likely on a monthly basis.

"The moves spooked markets that have increasingly perceived China as the engine for global growth, but it shows the resolve of China to engineer a sustainable path," Mr Scott said.

On the bubble argument, he highlighted the Chinese equity market on a price/earnings ratio of about 28x, which sounds high compared with developed countries, but is below the long-run average.

It is also much lower than the average multiple of more than 70x for Japan in 1989.

"A higher valuation for Chinese companies should be expected because they are growing profits at a much faster rate and the economy is functioning better than its western counterparts," Mr Scott said.

He said there was a bubble emerging in parts of the property market, but this was not a national issue and much of the boom was financed by savings, which is much less dangerous than credit.