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Friday 18 Aug 2017 | 19:14 | SYDNEY
Friday 18 Aug 2017 | 19:14 | SYDNEY

The Chinese juggernaut

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21 January 2010 14:06

Along with exchange rates, another key economic theme for 2010 is going to be the ability of the Chinese authorities to manage their runaway economy. Get ready for another of those debates about whether Beijing will manage to deliver a 'hard' or a 'soft' landing.

Back in October last year, Fareed Zakaria argued that China was the Great Recession's real winner. Certainly, if anything, the GFC appears to have helped, rather than hindered, China's progress up several economic league tables:

  • According to GDP data released today, China's economy grew by 8.7% in 2009. This means China is now poised to overtake Japan to become the world's second largest economy when world output is measured on a market exchange rate (US$) basis. Full-year data from Japan are out next month. Of course, China is already the world's second largest economy when output is measured on a more appropriate purchasing power parity basis.
  • Last year, China became the world's largest car market, helped in large part by the crash in US demand.
  • According to recent trade figures, 2009 also saw China take over from Germany as the world's largest merchandise trade exporter, as China grabbed market share.
  • Last year Chinese stock exchanges raised double the amount of money secured by initial public offerings (IPOs) than markets in the US, pushing China to the top of the world's IPO rankings.
  • Over January-November 2009, China overtook Japan to become Australia's largest export market.

While most of the developed world spent 2009 worrying about recession, huge fiscal and especially monetary stimulus has meant that China is booming.

Beijing's success has come at a price, however. Last year's dramatic policy response has exacerbated underlying structural problems in the economy. It's likely worsened some of the country's excess capacity problems. And rapid growth and soaring property prices have prompted fears of asset bubbles and overheating. 

As a result, the authorities are now tightening policy in an attempt to bring the juggernaut back under control. Tighten too much, and they risk choking off growth and delivering the much-feared hard landing. Tighten too little, and they risk losing macroeconomic control. Yet again, China's policymakers find themselves facing a delicate balancing task.

Photo by Flickr user HKmPUA, used under a Creative Commons license.

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