China has announced a new stimulus program.
The Government in the People’s Republic is walking a tightrope. On the one hand, if the economy tanks, there will be an increase in civil unrest. And on the other hand, if the Chinese Government spends too much stimulating the economy, inflation will rip out of control (nearly 40% of the population of China lives off of $2 per day).
So we continue to see the Chinese government inflate the economy, and then pull back, inflate the economy and then pull back. The Chinese stock market has reflected this as it has largely been moving sideways since the 2008 collapse.
In an economy in which so much of GDP comes from investment, China is hoping that QE will work for it despite the clear evidence that QE has been a dud in Japan, the US, and the UK.
The bigger issue for China is the fact that the rest of the world is in the doldrums. China is the biggest exporter to the EU. And the EU economy is in the toilet… again. The US isn’t faring much better. And these two regions alone account for over a third of Chinese exports.
China is hoping it can shift its economy away from exports to domestic consumption, but with 40% of the population living off of $2 per day… and much of the wealthy fleeing the country the first chance they get, the likelihood of this isn’t great.
Will this latest stimulus plan be the one to ignite growth again in the People’s Republic? We’ll see…but given that globally the world economy is slowing again… the odds aren’t good.
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