In order to counteract what has been bid “the most important sector in the known universe”, China imposed curbs on its property market in order to quell a mountain property bubble that threatened to derail the mounting recovery, a bubble largely a result of the large stimulus set in place to fund infrastructure projects country-wide and give the nation’s economy a “soft landing” ostensibly to prevent a “hard landing”.
The measures were effective in the short term, while questions remain as to just how the stimulus measures were funded, particularly at the local level, China dealt swiftly and deftly applied economic levers to avert what would truly have been a global economic crisis.
Unfortunately, these measures would only function so long as they could be paid for, and those funds would have to come from China’s powerful export industry largely responsible for the country’s rapid economic growth of the past 30 years. With developed nations, indeed, the vast majority of the G20 continuing in their economic woes, those export returns have been slow to reappear and are currently in a state of declining growth.
So much so, that China has now released more funds to further promote domestic growth within her own borders, funding more infrastructure projects while slowly relaxing property curbs to more actively engage the “soft landing” and wait for the economic recoveries of Europe and the United States.
China has just released 1 trillion Yuan in its most recent stimulus package, in a bid to further propel waning economic growth due to a dramatic slowdown in export growth, fueled by the continued economic malaise in the U.S. and particularly Europe. The question will be as to whether or not the Central government will be able to control inflation while continuing to release massive liquidity into the market. But therein lies the problem; China’s economy, no matter how much cash is readily available cannot escape the realities of the global financial climate, and while they may be able to temporarily suspend and economic crisis of their own using their hoards of liquid capital, they risk rising inflation and pricing their own burgeoning lower middle class out of the market, which could endanger stability.
Thus, China is working very hard to improve the plight of the common worker in order to both improve domestic consumption, thereby lifting the boat from within, but more importantly, providing economic security to those that may well be negatively impacted as things sour in the face of a continued global slowdown, thereby ensuring stability and buying time in the wait for the global economy to once more finds its feet.