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Will the Dragon bite the bullet?
Tue, 3 Feb Pre-Open

Following in the footsteps of the US, developed economies around the world have been in a money printing spree to recover from the looming slowdown. While the US withdrew its bond buyback program last year after it was first launched in November 2008, Japan and Europe recently joined the fray to boost their fledgling economies. If recent reports are anything to go by then China may be in wings to launch a monetary easing program.

The government's Purchasing Managers' Index (PMI) in China fell to 49.8 in January from 50.1 in December. In this case 50 is the threshold level separating expansion and contraction. Factors such as falling commodity prices and weak domestic and international demand has led to excess supply which in turn has pulled down manufacturing in the country. Reportedly the revenue growth reported by Chinese companies has been the slowest since 1991. Apart from slowdown in the manufacturing sector, China is also grappling with huge pile-up of debt in the state enterprises. Moreover the huge flow of credit has led to creation of asset bubbles in the construction and real estate sectors. Therefore any sharp change in liquidity can have a domino effect resulting in a steep slowdown in the country.

China's central bank had slashed interest rates in November 2014, for the first time in two years. But with developed economies still struggling to recover from recession, China's export markets are unlikely to recover in a hurry. Therefore many economists are of the view that the Chinese government may be compelled to resort to further monetary easing to get the economy back on track. It remains to be seen whether the measures will help boost domestic consumption and plug the slowdown arising from weak exports.

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