China is the world’s second largest economy after the USA. Unlike the USA, it is still enjoying good growth with a target level for 2012 of 7.5%; its lowest target level since 2004. However, as China seeks to export its goods to the rest of the world, it is not immune to the global slowdown or the doubts clouding the European markets over Greece’s future in the Euro.
The Chinese authorities have pledged action to counter faltering growth. This is likely to involve moves to stimulate private sector investment in the energy, telecommunication and rail transportation sections. China has an enormous potential domestic market, but it struggles to boost home demand. It is probably fair to say that China’s rise to economic super-power status has left many comrades behind. It remains a communist nation which is ideologically opposed to the capitalist way, of course – it’s a bit like the Pope declaring himself an atheist but wishing to stay at the helm of the Catholic Church.
The Chinese authorities issued a statement following a cabinet meeting: "Downward pressure on the economy is increasing. We must proactively take policies and measures to expand demand and to create a favourable policy environment for stable and relatively fast economic growth."
The authorities have been trying to prevent a property bubble from bursting and had tightened controls on banks, a move designed to choke off the money supply and so curtail the bubble. Banks had been required to increase the reserve ratio (meaning they had to hold higher levels of liquidity), but it seems likely that this will now be relaxed in a bid to boost growth by making money supply to business easier.
Whilst the Yuan does seem to be linked to the US Dollar with invisible shackles, the relative weakness of the Euro against the Greenback means that Chinese goods are becoming more expensive in the European market place. It begs the question of just how well China would fare if the Yuan was really allowed to float to its true value.