With China enjoying a current account surplus of 2% of GDP, inflation under control, with the latest reading is 1.4% yoy versus 6.45% in June 2011, and the deepest currency reserves in the world, the China Central Bank has room for manoeuvre and may already have started to explore its options.
Since a major market correction could indeed derail many of the government's long-term goals, the central bank is expected to take significant action.
"Hence the PBoC could provide further liquidity injections via the CSFC or directly, which would effectively represent a QE program", says Societe Generale.