China is rolling out a mini-stimulus to fight its economic slump, but is moving cautiously after its massive response to the 2008 global crisis left a painful hangover of inflation and debt.
Beijing has yet to announce a total price tag, but measures announced piecemeal in recent weeks include 66 billion yuan (US$10 billion) to build affordable housing and 26.5 billion yuan to subsidize sales of energy-efficient appliances.
That limited size should make the effort more manageable than the 4 trillion yuan avalanche of spending and bank loans in 2008, but its power to boost growth in a US$2.5 trillion economy also will be smaller.
Photo: Bloomberg
Still, analysts say the measures should be enough to drive a rebound and keep growth for the year at or slightly above 8 percent.
“I do think it will make a big difference,” Nomura economist Zhang Zhiwei (張智威) said.
“Second-half GDP growth will be better than the first half, to a large extent driven by this support,” Zhang said. “Without it, I think growth probably would trend down.”
After spending two years enforcing lending and investment curbs to cool inflation and an overheated economy, communist leaders began gradually reversing course in December last year following a plunge in demand for China’s exports.
Their efforts took on more urgency after economic growth plunged to a nearly three-year low of 8.1 percent in the first quarter and factory output grew at its lowest rate last month since the 2008 crisis.
Analysts say growth should slow further in the current quarter.
The State Cabinet publicly confirmed its strategic shift last week, promising to “give more priority to growth.”
The impact should start to show up in stronger growth in August or September, according to Standard Chartered economists Stephen Green, Li Wei and Lan Shen.
The 4 trillion yuan stimulus in response to the 2008 crisis helped China rebound quickly and pushed economic growth to almost 11 percent in 2010. However, it also fueled inflation and a bout of stock market and real estate speculation.
Inflation spiked to a 37-month high of 6.5 percent in July last year, with food prices surging 14.8 percent, before subsiding to 3.4 percent in April, below the government’s 4 percent target for the year.
Local governments that splurged on building new roads, bridges, schools and other public works were left with heavy debts to state banks that some may be unable to repay.
This year, Beijing is imposing more control, requiring central government approval for major investments and calling for projects to have long-term benefits.
“I think the government understands the undesirable side effects, and this time around they will try to stabilize growth around 8 percent,” Zhang said. “I think they want to avoid overshooting.”
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