China’s economy is slowing, and it is slowing fast.Over the past few weeks, the government has signalled that it is increasingly concerned about both the global and domestic outlook, and it has turned its attention to boosting China’s flagging growth. Until recently, though, policymakers had been fighting tooth and nail to cool things down, not heat things up.
Controlling rampant inflation and a runaway property market have been the government’s top priorities through most of 2011, as policymakers grappled with the consequences of the massive monetary stimulus unleashed to yank China out of the global financial crisis.
They ratcheted up administrative measures designed to lock out speculators from the housing sector, aggressively clamped down on the amount of cash that banks lent out and hiked interest rates to signal that they meant business.
And, starting in the summer, the first signs appeared that measures were gaining traction.
Inflation peaked in July and Premier Wen Jiabao made headlines claiming victory over price rises.
Growth slowed further in the third quarter of the year, with more recent monthly output data showing an entrenched downward trend. The froth in the property market finally started to dissipate.
But just as the government over-loosened in response to the global slowdown three years’ ago, they have over-tightened in response to the inflationary consequences of that no-holds-barred credit expansion.
Stemming a lot of the lending that went on outside the banking system brought things to a head in the third quarter, and the slowdown intensified.
In October, 34 of the 70 cities tracked by the statistical authority saw a drop in property prices from the month before.
Output growth from China’s industrial sector is now about two percentage points lower than in the summer and electricity production is seven percentage points down. November’s purchasing managers’ index - a measure of manufacturing sector sentiment - hit a low not seen since the zenith of the financial crisis.
To compound matters, China’s largest export market is in a perilous state. Indeed, in spite of all the policy challenges domestically, it is the eurozone that constitutes China’s largest risk to growth through next year.