With the developed economies on the wheel-chair, the world has been counting on the emerging market economies such as China and India to drive growth. At the height of the global crisis, the Chinese government had loosened up its monetary policy with the aim of spurring growth. And the dragon economy did recover strongly from the crisis. Everything looked hunky-dory.
And then the effects of over-heating started showing. Consumer prices shot up substantially. The liquidity generated as a result of monetary easing found its way into the real estate markets. Property prices went soaring skywards. Fear of a bubble gave jitter to the Chinese government. And since then the government resorted to monetary tightening. It hiked interest rates several times over the previous year.
The effects of monetary tightening are beginning to show. It is becoming increasingly difficult to obtain a loan. Property development has slowed down. In February 2011, auto sales declined year-on-year for the first time in the last 16 months. China recently revised its economic growth target down to 7% (earlier target 7.5%) per year for the five-year plan running through 2015. So there are pretty clear signs that the economy is slowing down.
China is the second largest and one of the fastest growing economies in the world. As a result, it remains a very strong leg of the global economic recovery. A slowdown in the economy would have far-reaching implications for the global economy.