Macroscope | Three ways China can use policy freedoms to shore up its economy and lead the world out of the mess

The odds of a global recession happening over the next year have probably widened over 50 per cent in recent weeks. Not since the 2008 crash has the outlook seemed so bleak. Economic headwinds are building, world trade flows are slowing down fast and global confidence is struggling, leaving China highly exposed as an export-dependent economy.

With increased protectionism by the United States, recession looming in Europe and local Asian trade partners feeling the pinch, China must move swiftly to stave off a steeper slowdown. The good news is that China might be in a better position than its competitors to fend off the worst of the coming storm.

What are the options? Strike a face-saving deal with the US over trade, devalue the renminbi exchange rate or focus inward, opening up the domestic stimulus taps in order to go for growth. In reality, it needs to do all these things.

While the US Federal Reserve, the European Central Bank and the Bank of Japan might be running short of viable options to rejig recovery, Beijing still has plenty of room for manoeuvre on the interest rate and monetary fronts to bolster growth. And it shouldn’t be shy about using them to full effect to mitigate the slowdown. After all, Beijing must protect its 6 to 6.5 per cent annual growth target, especially after hitting a 6.2 per cent rate in the second quarter, the slowest rate of economic expansion for 27 years.

In a footnote to the slowdown, annual industrial production growth slipped to 4.8 per cent in July, a 17-year low. Chinese businesses and consumers are bearing the brunt of the trade war, piling pressure on Beijing to intervene more effectively.