What has China done to boost their economy?

China's September GDP rose at 9% compared to a year ago. This is the first time in 5 years GDP had single-digit gain. That is not surprised given the Olympics Games had cooled government driven investment and the world economy was battered hard. The question is what China has decided to do with their skidding economy and the global one.

It is openly discussed GDP in 2009 would be around 8%, continuing the downtrend from 2008. The government won't allow it to go under 8%. Tracing back to the root is that the housing market, which has already lost 20%, and stock market, which had already vanished 70% from its peak, are two main focal points in the policies.

First, new housing policies have limited positive effect. Central and local governments are shy of talking about housing price slump and its aftermath in overall economy. Unstability and unemployment would be two direct consequences. Thus, China lowered the standard mortgage rate to 20% from about 45%. New policies also encourage second-home owners. These are right policy given that the sluggish market and dropping prices. Comparing the policies to cool off the red-hot RE market just at the beginning of the year, it seems very inconsisent in policy making. Even with these helps, price droppings are inevitable because the export driven chinese economy will face severe challenge in the coming year. Many people decide wait-and-see. It is not wise to increase debt level when the future is uncertain. Thus, the reason hope from the housing market is that it can remain a lower level of transaction while dropping price. Certainly this situation will contribute a rising unemployment rate. But it is much better to sink the whole industry.

Another side of the problem new policies need to address is that drive developers lower their price. This sounds funny but very true: as price drops, developers become more reluctant to sell at lower price. Consequently, the market becomes less liquidated. If nothing is done, many smaller developers have to file bankruptcy or merge with large ones with depressed price, which would sink the whole industry. This part is harder to solve. Convention thinking is that let the goverment be the ultimate absorber. It maybe possible but just it is not a right time to propose this because many other industries need government help.

Secondly, no aggressive policy will be released to spur the cooled stock market. Maybe it is still fresh memory about the record run stock market that took much governing authority to cool it down, the policies towards stock market are more timid. It is not good enough to spur it, even back to 50% of the peak. Such uptick would easily drive up RMB due to the worsening global economy. On the other hand, the authority attempt a short-selling testing in a small scale. This is apparently to prevent future bubbles. Rifts between growing security market and governing boides would be still widening in the short term. However, compared to the housing market, the security industry seems to be put in the passenger seat.

Overall, we shouldn't hold too much hope for a strong rebound before the housing market stablizes. It is also not reasonable to think the stock market would have another 50% drop. Thus, a sluggish market is more possible over a time window of 1 year. Thus, the netry is quite long and no rush at all.

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