Ironically, in China the government had actually begun to implement contractionary policies in November 2007 to tamp down the heavy pace of growth and accompanying
inflationary pressures that had been building since 2003. As late as June 2008, the central bank raised the commercial bank reserve requirement twice (by a half percentage point on 15 June and another half point on 25 June) to further restrain monetary growth. The quick reversal of economic fortunes during the year is reflected in quarterly GDP growth rates (Figure 3), and shocked policy makers watched as the spreading global crisis turned the growth moderation into what looked like a free fall. Even more threatening was the deflation that was appearing to take hold, as month-on-month changes in the consumer price index dipped into negative territory in mid-2008 and stayed there through the rest of the year (Figure 4).