When the global recession struck, countries all over the world saw their economies contract and fall. The damage can still be seen with mass unemployment in America, large national debts in Europe and the cancellation of several high profile building projects in the Middle East. However, Asia has been faring much better...

Like other countries around the world, China was forced to close several businesses and lay off thousands, however the government was able to bolster the economy with a massive government stimulus package. As such, the Chinese economy has expanded rapidly and is now the second biggest in the world, after Japan.

This year alone, the Chinese economy has expanded by an impressive 8.7 percent with growth in the final quarter of 2009 increasing by 10.7 percent from the same period a year earlier. Whilst Japan has the strongest economy, they have still seen a contraction by 6 percent.

Whilst China is riding high, there are concerns about what will happen once the stimulus is withdrawn and whether the economy will be strong enough to carry on without help.

Quality of growth

"There's very strong growth but there's real concern about the quality of the growth and what will happen when the stimulus is withdrawn," said Michael Pettis, professor of finance at Peking University, speaking to the BBC.

"It seems pretty clear that any withdrawal of the investment stimulus is going to have a big impact on growth."

With inflation picking up and consumer prices increasing by 1.9 percent in the past year, there is concern from the Chinese government about the economy overheating and have taken precautionary measures, such as telling the banks to keep more money in reserve and, according to rumour, asked them to stop lending for the rest of the month.

Such rapid growth in the past has always seen a period of stagnation, so it is only natural for the Chinese to be cautious. In the 80s, Japan was predicted to overtake the US, but its rapid expansion soon stalled. This is probably at the forefront of the Chinese governments' mind. While its economy is growing, its population is much greater than Japan's and there are still great swaths of the country that live in poverty.

For the new year which, according to the World Bank, will see global economic growth slow down due to the withdrawal of government funding, it is only natural for China to be cautious.

Image from the World Bank