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How ‘Soft’ Will China’s Landing Be?

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Iain Masterton | Photographer's Choice RF | Getty Images

How “soft” will China's landing be? That has been the big question in the past few days. One big issue: China’s trade balance has reversed — after years of running a surplus, it is now in deficit.

No big surprise, as China’s two biggest trading partners — the U.S. and Europe — have seen slower growth in the U.S., and outright contraction in Europe. But the size of the deficit is larger than expected.

Responding to the surprisingly large trade deficit, officials in China’s central bank have indicated they may no longer be as supportive of the yuan.

There is widespread speculation that China’s central bank will cut the required reserve ratio (the amount of cash lenders must keep with the central banks). The central bank cut the ratio twice last year, to 20.5 percent from 21.5 percent.

Don’t get too concerned — China's deficit of $4.2 billion in the first two months is still peanuts compared to the enormous surplus it ran last year ($201.1 billion), and it still runs a huge surplus with the U.S. But it has been shrinking.

China’s exports are about 40 percent of gross domestic product — reason enough to be concerned.

Elsewhere:

1) Italy in recession: Italy’s economy has declined for two straight quarters — down 0.7 percent in the fourth quarter of 2011, following a 0.2 percent decline in the third quarter.

2) Euro zone finance ministers meet in Brussels today. The main topic: Authorize the 130 billion ($171 billion) euro bailout for Greece.

The International Monetary Fundwill be meeting Thursday to discuss the Greek bailout.

3) U.S. Federal Reserve’sFOMC meeting Tuesday.

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