It seemed like it was just yesterday that China’s exponential growth appeared to be perpetual and its exchange traded funds (ETFs) were having a heyday. Well, the results are in and China’s economy is in the throes of a downturn, but it’s expected to mitigate the damages to its economy through a series of careful steps.
China, the fourth-largest economy in the world, is leaning toward deflation with an expected “sharp” drop in its producer price index for December and a GDP projection of 8% for 2009, according to Bloomberg.
Last month, exports from China fell for the first time in seven years, imports contracted, and manufacturing needed some sort of resuscitation as global recession pulls China’s economy further downward, writes Mike “Mish” Shedlock for Global Economic Analysis.
The expected $585 billion stimulus package that will be injected in the second quarter of next year is noted to be a bit late as China’s economy is said to be on pace to bottom out in the first quarter.
China will increase its money supply by 17% in an effort to goad consumer spending and protect itself from global downturn. Economic policies of the country has turned into a “beggar thy neighbor” policy so as to gain a competitive edge through currency devaluation at the expense of trading partners.
The Chinese government has also issued statements seeking to stabilize the capital markets through expansions of bond issuance, increased insurance coverage, support for mergers/acquisitions to enhance industrial upgrades, and investments into capital markets to help bolster consumption and exports, reports China Daily.
Tony Sagami for Money & Markets notes that there has been some negative news coming out of China lately – and from its own leaders. Most seem to agree that the impact of the crisis is not done being felt, and that citizens should prepare for more trouble ahead.
Hopefully, the government policies in place will help faltering Chinese ETFs such as iShares FTSE/Xinhua China 25 Index (FXI), which is currently down 40.9% year-to-date, and help assuage investor doubt.