Monday, July 16, 2012

Is China Slowing Down?

Matthew O'Brien:


China's policymakers can do a lot more. Consider that inflation fell to 2.2 percent in June. That's actually worryingly low. But it also means the People's Bank of China can cut rates without feeling concerned that rising prices will squeeze workers. 

China will have to walk a policy tightrope. They face two contradictory problems right now. The first is slowing exports. The second is its slowly deflating housing market. They can thank Angela Merkel for the former, and their own policymakers for the latter. For the past year, policymakers have tried to cool its frothy property market, which boomed after the credit-fueled 2008 stimulus. China's leaders are reluctant to repeat that experience -- they do not want housing to get bubbly again -- so that makes it a bit harder to make up for lost exports this time around. Harder, but certainly not impossible. Enough government spending could make up for it. There are already signs that might be starting to happen.
 Can the Communist Party engineer a soft landing?  I'd say maybe, but it's doubtful.  A hard landing will shake the whole world.

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