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Now it’s China’s turn.
The global growth picture has improved gradually since the start of the year. The U.S. economy is finally expanding again and commodity prices are on the rise. Even many emerging markets, be they in Latin America or Asia, are steaming ahead as fears of a world recession start to recede.
But, it is China that is now needed to really cement this positive picture. Beijing spent most of last year slowing Chinese growth with tighter monetary policy to prevent the economy from overheating and inflation from getting out of hand.
Evidence continues to mount that the policy worked. After growing at nearly 12% at one stage in 2010, Chinese officials reckon that growth slowed to 9.1-9.2% over the course of 2011.
The problem is that the policy may have worked too well. With the euro zone, China’s largest trading partner, still shrinking and with the latest data showing that import growth into China has slowed much more than expected, there are still fears that China might not achieve the “soft landing” that Beijing is aiming for.
A recent decline in property prices which has shaken the country’s banking system has contributed to concern that Beijing isn’t responding fast enough. Since the start of the year the People’s Bank of China appears to have relaxed its policy of pushing the Chinese currency, the yuan, higher against the dollar, and has allowed it to fall back a bit.
With the U.S. once again on the war path over China’s large trade surplus, Washington took the opportunity this week to start monitoring Chinese trade for violations. But, perhaps it is the performance of China’s key stock market index, the Shanghai Composite, that tells the real story. The index has been falling steadily pretty much since the end of 2010, with losses still rising at the start of this year despite rallies in many other Asian markets.
With inflation still well above 4%, the People’s Bank of China is believed to have been reluctant to start reversing its monetary tightening too aggressively. With food prices still high and civil unrest in many parts of China still simmering just below the surface, the last thing Beijing would want to do is to allow inflation to take off again in an economy that is already starting to slow down.
However, there is widespread hope in financial markets that new consumer price figures on Thursday, which should show inflation coming down to 4.0% from 4.2%, will be enough to convince the PBOC that another dose of monetary easing–either in the form of an interest rate cut or a reduction in bank reserve requirements–is now appropriate. This would probably go a long way to lift global growth prospects even higher and reduce even further the defensive mode that many international investors have been in for the last few months.
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Isn’t that a good thing to have – having to worry about a growth rate too high? Is there such a thing as having too much money?
The Source is WSJ.com Europe’s home for rapid-fire analysis of the day’s big business and finance stories. It is edited by Lauren Mills, based in London.
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