China Greenlights Full Speed Ahead Policy

There have been some nervous moments over the past week about China's outlook for the coming year. First there were worries that China would crack down on the current high level of bank lending. That didn't happen although banks may have to raise some money to back up their loan ratios.

Then there was Dubai. The near-default of Dubai World on billions of dollars worth of sukuks (Islamic bonds) raised fears of another U.S. style mortgage meltdown. But Dubai's near-default isn't anywhere near the scale of the U.S. debacle and Chinese banks have almost no exposure to Dubai debt.

With that news and new policy guidance from Beijing, China's stock markets have recovered from last week's tremors. The most important news for long run concerns Beijing's policy on economic stimulus in the coming year.

The China Economic Review reports today that China will maintain current stimulus policies to prop up economic growth in 2010 despite fears of overcapacity and asset bubbles, state media reported.

The Political Bureau of the Communist Party of China Central Committee said the country will "continue the proactive fiscal policy and moderately easy monetary policy next year."

There continue to be concerns about overexpansion, overheating and bubbles in the economy, but the markets have breathed a sigh of relief that Beijing has decided not to put the brakes on monetary policy in the year ahead.

The economy grew 8.9% year-on-year in the third quarter and is on track to meet the government's full-year target growth of 8%. The Politburo said it would "enhance the focus and flexibility of economic policy in the following year according to new situations."

In other words, Beijing will try to micromanage any problems while keeping its foot on the gas. We'll have more on the outlook for China's investment scene in 2010 in the about-to-be-released December edition of the China Stock Digest.

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