China faces a major change in 2012 with the top leadership of the country going to new leaders and the old set will go away.This means new policies and directions amidst major challenges to the Chinse economy and society.
China faces multiple challenges
1) Slowdown in Europe and USA means that their exports are sputtering and manufacturing has already started contracting
2) Protests in cities and villages grows against rampant corruption and land grabbing by Communist officials.Lack of democracy means violent protests at times.
3) Debt is becoming a huge problem with local government vehicles facing trouble as they can no longer raise money from real estate sales which has fallen by 20-25%
4) Massive industrial overcapacity is being exported outside.This has made the other trading nations put duties and curbs.A big trade war with USA cannot be ruled out.Chinese solar and wind products faced countervailing duties and dumping charges.China has already imposed high duties on US car imports.
What China intends to do
a) China will balance “relatively quick” economic growth with inflation control in 2012 (don’t know what that means and how will they do it)
b) Country would maintain a “prudent” monetary stance and ensure that policy remains stable in 2012.
c) the 25-member Politburo affirmed an unchanged “proactive” fiscal stance for 2012 in December, a Nov. 30 cut in banks’ reserve requirements indicated a shift toward a bigger emphasis on supporting growth.
China has been called the “savior” of the world’s economy as its massive $586 billion Government Stimulus and Easy Money policies sustained over 10% GDP growth in 2009 even as the world GDP was contracting for the first time in recent history.However China’s huge stimulus has created problems of inflation and asset bubbles which threaten to slow down the world’s “Growth Engine” . This combined with the Greek Contagion has raised the fears that a “double dip” world recession could be just around the corner.China’s leadership is also wary of a second global downturn. However a bubble in the real estate has forced the hand of Chinese authorities which are trying to cool down the red hot “real estate” sector.The reasons that China’s economy which has averaged around 7-8% GDP growth in the last 30 years might be slowing down are listed here
China will balance “relatively quick” economic growth with inflation control in 2012, amid rising uncertainty about the world economic recovery, President Hu Jintao said in a speech yesterday.The government will speed up economic structural adjustment and give priority to improving people’s well-being, Hu said in the five-minute New Year’s Eve speech carried on state television and radio.China’s manufacturing contracted for a second month in December as Europe’s debt crisis cut export demand, fueling speculation that the central bank may cut lenders’ reserve requirements within days.Earlier yesterday, the head of China’s central bank, Zhou Xiaochuan, said the country would maintain a “prudent” monetary stance and ensure that policy remains stable in 2012.
Summary
From the above it seems that the Chinese government still does not know exactly what to do.Controlling inflation with high growth seems a bit difficult.The problems are too big and the economy will slow down substantially.