China's Economy Nears Growth Targets

Daily Forex Fundamentals | Written by ecPulse.com | Sep 21 09 05:15 GMT |

Expectations show that the Chinese economy is on its way to reach the growth target set by the government at 8% this year after the rebound across the globe which helped several economies crawl out of the worst financial crisis. The Chinese economy reported growth of 7.9% during the second quarter of the year following a 6.1% growth rate in the first quarter. This was due to the large stimulus plan set by the government back in last November worth 4 trillion yuan which was aimed to help support growth that has been negatively effected by the global recession. The government was able to implement this plan after saving the financial sector as it pumped liquidity into banks and other credit and financial institutions to encourage lending and investments in the different sectors. In addition to that, the economy benefited from the support it received from the stimulus plan which focused mainly on the nation's infrastructure as it helped provide several job opportunities and improve domestic demand. Expectations now show the fact that the economy is nearing the 8% growth target this year as the economy was able to heal internal factors that offset the negative effects from falling exports. Now and after the improvement seen in global economies and the return of confidence in the markets, it is safe to say that the Chinese economy has a more solid base to lean on. However, lets not become too optimistic since the last global crisis just proved that nothing's impossible after the collapse of large financial institutions one after the other as the worst crisis since the Great Depression continued to claim victims. The Chinese economy continues to face difficulties that have aroused from lending as it worries policy makers. Commercial banks and financial institutions seized the opportunity of the government stimulus plan and low interest rates to boost lending which may be a two edged blade to the future of the Chinese economy. With this boost in lending, we see that the different business sectors will have more chances of investments and expand its operations which will increase capital. On the other hand, we can't ignore that with more lending and liquidity in the financial markets, this could result in inflation risks, especially as global demand starts to pick up which helped support the recent rally in energy and primary commodity prices. In addition, these massive amounts of liquidity may also result in a new stock market and real estate bubble and eventually lead to another crisis in China. And in order to side step this problem, we have witnessed several statements from policy makers that China should stop expanding its monetary policy and that during the second half, it will use other tools and measures to help promote economic growth and offset the effect of exports that have slid from previous levels. Ecpulse disclaimer: The content of ecPulse.com and any page in the website contain information for investors/traders and is not a recommendation to buy or sell currencies, stocks, gold, silver & energies, nor an offer to buy or sell currencies, stocks, gold, silver & energies. The information provided reflects the writers' opinions that deemed reliable but is not guaranteed as to accuracy or completeness. ecPulse is not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trades currencies, stocks, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, stocks gold, silver &energies presented should be considered speculative with a high degree of volatility and risk