China’s economy grew at 7.5% in the second quarter, compared to the same period last year. The government of the People’s Republic may not only use this rate as part of reform movements for local government debt problems. It may also cause a huge stimulus package like the one set in 2008, when the central government pushed more than $500 billion into the economy. The move might increase inflation, which is a constant worry within the world’s second largest nation by gross domestic product (GDP). It may also contribute to bubbles, which often include the increase in real estate prices. However, if such a stimulus were taken, it might prop up the activity of China’s middle-class consumers, which would help internal growth and support imports to both its businesses and these consumers.

According to Reuters:

So for now, economists do not see any major stimulus or policy shift and instead expect the government to tough out the slowdown as they pursue a longer-term vision of reforming the economy towards consumer-led, rather than export- and investment-led growth.

Beijing is still cleaning up trillions of dollars in local government debt left over from its last spending spree during the 2008/2009 global financial crisis, while trying to rein in off-balance-sheet loans.

Surviving the slowdown may not be an option. China’s factory workers are used to rising wages, and a drop in consumption could cause permanent damage to the activity necessary to move the nation’s GDP structure to one more like that of the United States.

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