As the global economy faces several headwinds, China seems to be the only nation that comes to mind when the phrase “survival of the fittest” is mentioned. Here are some of the tools that China can use in the event of an economic apocalypse:
1. China’s pockets run deep.
To give you an idea of how much cash China has lying around, recall that their government was able to release 1.2 trillion yuan in fiscal deposits in December last year in order to boost liquidity. They sure know how to make it rain!
This injection of liquidity allowed Chinese banks to extend more loans, from 562.2 billion yuan in November to 640.5 billion yuan in December. Analysts were quick to point out that the effect of the outflow of government deposits was even greater than the impact of an RRR cut.
2. High tax revenues
One reason that could explain the Chinese government’s readiness to release so much cash from their pockets is that they are expecting to receive a record-breaking tax revenue of 10 trillion yuan for 2011. That means they could still have room for yet another release of fiscal deposits!
In contrast to the Western nations having trouble trimming their deficits, China has more than enough cash in its pockets, protecting it from a potential liquidity crisis.
3. Further RRR and interest rate cuts in the PBoC’s arsenal
Since the Chinese government already released a ton of cash to increase money supply and spur lending, the PBoC doesn’t need to reduce the ratio of reserves that banks need to keep in their vaults for the time being.
Besides, it seems that the injection of fiscal deposits was a resounding success, which means that the options to cut the RRR or their interest rates can be kept in their tool box unless it’s absolutely necessary.
4. Domestic demand remains strong.
In the event that the dreaded double-dip recession takes place, China’s economy will most probably take a hit along with everyone else. After all, a global economic slowdown would hurt China’s exports and manufacturing industries.
But, unlike everyone else, China can rely on its booming domestic demand to keep its economy afloat. Studying the trend of both imports and exports for the past few months would reveal that domestic demand keeps rising despite the slight downturn in exports.
5. Investment is also a promising driver of growth.
For the past year, the investment component has been neck and neck with consumption when it comes to being the largest contributor to GDP. With net exports steadily decreasing and with further downside risks to trade activity, China can target its easing policies to favor both private and public sector investments in the coming months.
With all these policy weapons in China’s arsenal, it’s hard to imagine how a potential global recession could even put a teeny tiny dent on their economy. Then again, nothing is set in stone as the ongoing economic threats seem to be just the tip of the iceberg.
Do you think that, even with all these tools at their disposal, China would still be vulnerable to a potential economic meltdown? Let us know what you think by answering the poll below!