For the past three decades, China has seen impressive growth. Even more impressive is the way officials there have engineered a robust economy in recent years.
While most of the rest of the world was mired in recession in 2008 and 2009, China's economy expanded by more than 9% annually. And to the surprise of many forecasters, officials announced earlier this week that China grew more than expected at the end of last year. GDP rose 8.9% during the fourth quarter, even as Europe's unfolding debt crisis unnerved investors. Admittedly, growth ended 2011 at the slowest pace in 2-1/2 years, but still higher than most expected. And perhaps more importantly, above the 8% minimum that economists believe is needed for sufficient job creation.
It's clear that China can orchestrate economic growth. But in the coming months – given the fallout transpiring in Europe – it will prove much harder for officials to orchestrate what economists call a "soft landing." That's the daunting task of slowing double-digit GDP growth to mid single-digit growth and reining in inflation, and at the same time cooling its hot real estate market without crashing it.
What has set China apart over the years is its unique ability to tweak its economy in a way that pleases both the public and private sectors. In the wake of the 2008 financial crisis, China launched a massive stimulus plan and largely averted a recession. Officials invested billions in infrastructure projects and encouraged banks to lend and fund construction of everything from apartments to soaring office towers. What's more, in 2010, while most developed nations struggled to recover from the global recession, China's economy outpaced Japan to become the world's second-largest economy after the U.S.
But then the Chinese economy was growing too fast. Prices for homes, in particular, skyrocketed and put home ownership out of reach for millions. And when many investors wondered if the property bubble would burst, officials implemented policies to reel in inflation by hiking interest rates and tightening lending standards.
Now that investors worry China may not be growing enough, it has gradually shifted to looser monetary policies. Chiefly, the government has instructed banks to increase their lending, which, unlike in the U.S., is possible since all large banks are owned by the state.
All about exports
Yet China's resilience appears to be waning and 2012 could be a very tough year. The country that has avoided other economic headwinds may have more trouble escaping the wrath of Europe's debt crisis. China's growth for all of 2011 slipped to 9.2% -- a pace the U.S. and Europe could only dream of. But that's still markedly weaker growth from the 10.4% in 2010 and it's a pace last seen in 2009 during the global financial crisis.
Economists widely believe that growth of at least 8% is needed for a soft landing. But the latest GDP figure highlights a significant drop in exports, which essentially drives China's economy. In December, Chinese goods and service sold abroad rose 13.4%, marking the slowest export growth since November 2009 aside from seasonal blips due to New Year holidays.
