Will the Chinese government be able to jump-start the economy? And, if it can, what price will it pay? For many people, the 4 trillion yuan (HK$4.55 trillion) stimulus package announced this month provides the answers. But no country with an economy as large as China's can turn on a dime. It will take time to fix the misfiring pistons and shift gears.
The government's effort to revitalise domestic growth is made doubly hard by the fact that China is facing the first synchronised recession in all major western economies since 1978, the year it embarked on economic reform. The carnage in Guangdong province, where thousands of export-oriented factories have gone bust this year, suggests how vulnerable the Chinese economy is to weakening external demand. So China knows the only way to compensate for this is to fire up domestic demand.
Fortunately, China has enough fiscal resources to undertake a robust countercyclical drive. Though it is true that the headline sum of 4 trillion yuan represents the expansion of many existing programmes, the government can muster another 4 trillion to 6 trillion yuan next year.
And the stimulus spending will target the badly needed development of railways, hospitals and environment-related industries. These are already part of the 11th Five-Year Plan (2006-10), but it is still sensible to front-load them.
Meanwhile, the risk of higher inflation is falling rapidly. That gives the central bank more room to relax monetary policy.
The bottom line is that the Chinese economy should at least be able to muddle through the worst of the global slump. It will, however, probably pay a price in the form of higher non-performing loans (NPLs) at banks, as the stimulus money inevitably flows into unviable companies and dubious projects.
But why should China settle for a mere muddle-through? Why not fire all the big guns at its disposal to fight the slowdown - including a depreciation of the yuan? After all, most of the stimulus plan will be of no help to the collapsing exporters in southern China. In recent years, exports have accounted for about one-third of the country's gross domestic product growth. The biggest argument against a policy allowing a weaker yuan, of course, is that China still generates a huge trade surplus. And, politically, such a move is certain to provoke a confrontation with the incoming Obama administration in the US; as a presidential candidate, Barack Obama accused China of keeping the value of its currency artificially low.