The Chinese leadership has unleashed the most dramatic economic stimulus experiment the world has seen, and it has worked. The next trick, as publicly recognised by a long line of policy makers beginning with the Premier, Wen Jiabao, is to engineer an exit strategy that enables growth to be more ''balanced'' self-sustaining.
But the long list of risks in this 4 trillion yuan ($680 billion) experiment - corruption, over-construction, non-performing loans and stunted growth in wages, employment and consumption - are unlikely to begin to manifest in China's GDP accounts until late next year. In the meantime, the world and Australia in particular can sit back and enjoy the ride.
You wouldn't know it from last week's headline economic numbers, but the direct impact of government stimulus is already fading. New loans peaked at an astonishing 4.5 trillion yuan in the June quarter and are on track to fall by three-quarters in the September quarter. This means Chinese banks have stopped shovelling money to whoever has their hand out and have reverted to something resembling normal lending policy.
A similar trend can be seen in government-initiated project starts. A Deutsche Bank economist, Ma Jun, estimates that the central government began 5 trillion yuan worth of stimulus-related projects in the June quarter. He expects it will drop closer to 3 trillion in the September quarter and 2 trillion in the December quarter. The level of government investment will remain high but the growth rate will plummet.
This pattern of a hugely front-loaded stimulus is consistent with the fiscal response of the then premier, Zhu Rongji, to the Asian financial crisis. In September 1998, growth in government fixed-asset investment peaked at 70 per cent. One year later it fell below zero. This time around, government fixed-asset investment is now growing at 60 per cent and is also set to fade, if not so precipitously.
GDP growth will fade with government investment, but not as drastically. On Deutsche Bank's calculations, GDP growth in annualised quarterly terms dropped as low as 2 per cent in the December quarter before rising to 6 per cent in the March quarter and a world-shaking 18 per cent in the June quarter. Ma forecasts that quarterly GDP growth is already on its way back down to about 10 per cent in the September quarter and 8 per cent in December.
The first reason that Chinese GDP growth will not fall through the floor as the Government's stimulus loses impact is plainly evident in any Chinese city: private real estate construction is picking up. This is encouraging for Australian mining companies.
August residential property sales were 85 per cent higher than a year earlier, which marked the nadir of the Chinese property slump. New construction starts were up 24 per cent over the year and floor space under construction - which closely tracks Chinese steel demand - is also sharply higher.
The second reason that China's GDP growth will not collapse with government investment is less conspicuous: exporters are picking themselves off the canvas. The nascent export revival has been disguised by the Government's insistence on printing year-on-year figures that disguise movements within the year. While Friday's figures showed that exports in August were stuck at 23 per cent below last year's levels, they had in fact risen 3 per cent since the previous month.
Chinese exports closely track G3 growth and therefore fell through the floor when the big economies fell over earlier this year. The effect was amplified as importers slashed their inventories.
That correlation is now working in China's favour. G3 growth appears to have bottomed and Chinese export movements will be amplified on the way up just as they were on the way down. Deutsche Bank says the headline export figures could easily turn around from minus 23 per cent now to plus 15 per cent within a year. That would add back the 3 percentage points of GDP growth that net exports had recently taken away.
By then China's famous imbalances - over-reliance on exports and construction at the expense of everything else - will be back to the fore. And another long-forgotten problem will have returned.
Year-on-year figures suggest China is still struggling through a deflationary spiral, with consumer prices down 1.2 per cent in the year to August and upstream "producer" prices down 7.9 per cent. But those annual figures smooth over the fact that consumer prices have been creeping up in recent months.
The Chinese Government has achieved things with its economy that other world leaders would not be game to try. But in the absence of some shock reforms at this week's Communist Party plenum meeting, I doubt they can pump 4 trillion yuan into the economy without producing an early inflationary surprise.