Recovery hopes fading

(China Daily)
Updated: 2010-05-06 08:02
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Editor's note: Chinese policymakers should learn to stanch bank lending and pierce the property bubble sooner than later.

Optimism over a stronger and broader than expected global recovery is evaporating as the euro-zone debt crisis deepens.

Chinese policymakers should prepare for a possible double-dip of the world economy while pressing ahead with domestic efforts to squeeze out asset bubbles and prevent economic overheating.

Less than a month after it raised the forecast for global growth to 4.2 percent this year compared with a January forecast of 3.9 percent, the International Monetary Fund now has to join euro-zone countries in the unprecedented 110-billion-euro ($147 billion) three-year Greek bailout.

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It is still unclear if that will be enough to halt a widening European debt crisis. And if investor fears about the future of euro-zone economies cannot be contained quickly, a new phase of the worst global crisis in decades could be right around the corner.

This darkening global growth prospect makes it more difficult for China to continue in its efforts to cool the sizzling property market and prevent economic overheating.

The Chinese economy expanded by 11.9 percent year-on-year in the first quarter, the fastest growth in nearly three years while property prices in 70 Chinese cities jumped a record 11.7 percent in March.

As a result, the Chinese government recently launched the most draconian campaign yet to cool the property fever and raise the deposit reserve requirement ratio to tighten credit supply.

It takes time for these tightening measures to bear fruit. But the sudden change in the global growth prospects has added to the risk that these policies may be too tight for a solid recovery at home.

Chinese policymakers should certainly pay close attention to the possible impact of a slowed global recovery on the domestic economy. And if a new phase in the global crisis does begin, Chinese policymakers should learn to stanch bank lending and pierce the property bubble sooner than later.