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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