- China—the world's third largest economy—grew by 7.9% in the second quarter from the previous year, fueled by large and efficient stimulus efforts.
China's strengthening economy will probably lead the global recovery, as increased domestic consumption incites demand for imports.
The US stimulus and others around the globe will eventually have similar impact.
Known in the Chinese zodiac as hardworking and fearless, the ox sounds like something we'd all like to have in our corner about now. Six months into 2009, the Year of the Ox, it seems astrology got this one right. Fueled by large and efficient stimulus efforts, Chinese officials announced the world's third largest economy grew by 7.9% in the second quarter from the previous year. This is in all likelihood a powerful precursor to a global economy waiting on its own stimulus efforts to kick in. China's looking like it will take the yoke of economic recovery upon itself and plow a path for other nations to follow.
Not only has money supply ballooned—up 28% from a year earlier—but funds from the $585 billion stimulus package (announced last November) have also been doled out rapidly. Flexible policy initiatives are spurring dramatic lending increases, with $224 billion in new loans in June alone, doubling May's figures. Additionally, tax cuts have provided incentives to businesses and consumers alike. This flood of money is contributing directly to massive infrastructure construction and manufacturing spending. The private sector (such as it is in China) is also riding positive trends—auto sales are up nearly 18% and six-month property sales rose 53% over last year.
The question is: Does China's economy boast the power to lead global recovery? Increasing domestic consumption and business activity will likely incite demand for imports, especially raw materials and energy. This bodes well for export nations looking to kick-start trading in the wake of the global downturn.
The Chinese stock market seems to support the theory of a robust Chinese economic recovery. The Shanghai Composite Index hit lows late in 2008 and has since rallied significantly—reaching 13-month highs this week. But government officials aren't jumping the gun and remain cautious about positive economic signs—assuring investors China's flexible policies will remain in place, at least for the time being.
Risks undoubtedly remain. We have yet to see how the Chinese economy will fare when their myriad stimulative programs are reined in. At this point, one thing's for sure: China could very well lead the global recovery—a bullish precursor for the rest of the world's stimulus efforts and demonstration of effective policy response to the economic crisis. Here's hoping this ox can muster the strength to keep the plow going.