But the question now is whether the slowdown can be calibrated enough for a “soft landing,” or whether a more severe slump — a “hard landing” — is in the offing.
The answer matters to more than just China. When the world fell into recession in 2008, Chinese officials responded with a massive 4 trillion renminbi ($586 billion) stimulus package that spurred a boom in real estate, construction and car sales. China thus became a lifeline for some American companies such as General Motors, which was able to snap back from its 2009 bankruptcy because of the soaring demand for cars in China.
But the Chinese government has said it is withdrawing from stimulus spending and has been tightening bank lending to soak up excess liquidity. Also, officials here have repeatedly said there will be no new stimulus.
In other words, if the world is once again counting on China to help bolster the struggling global economy, China’s message to the world is: You had better look elsewhere.
“China can’t play the ‘save the world’ role,” said Guo Tianyong, director of the Banking Industry Research Center at the Central University of Finance and Economics. “China cannot act as the locomotive of world economic growth.”
China’s official growth target this year is said to be about 7 percent, but growth of between 8 and 9 percent still seems likely. That figure is enviable by Western standards, but well below the double-digit growth China enjoyed for most of the past two decades. Economists say China could drop to 7 percent growth or less before the government would become concerned enough to contemplate a new round of spending.
[Fears of an economic slowdown in China were one factor driving down markets in Asia Friday, especially in South Korea, China’s largest trading partner.]
“I don't think the Chinese government will come up with a similar stimulus plan” as in 2008, said Wei Yao, China economist at Societe Generale in Hong Kong. “China is able to bear it if economic growth slips to 8 or 7 percent.” She added, “I think the possibility of a hard landing is very small.”
For the moment, inflation — running above 6 percent per year as of last month — is a far bigger worry for policymakers in Beijing. Also, the 2008 stimulus — which saw the rapid construction of high-speed rail lines, new airports, highways, power plants and apartment blocks — created a host of problems that the government is grappling to solve.
The construction boom aided the global economy by boosting countries such as Australia, Chile, Brazil and Canada, which supply raw materials to China, and Germany, which sells heavy machinery and equipment. But the building spurt also created what many economists fear could be a hidden “debt bomb,” as state-run banks loaned money easily to local government-created investment entities.