China’s stimulus in any world economic slump is unlikely to be more than half the nation’s estimated 9.3 trillion yuan (US$1.46 trillion) fiscal and monetary expansion from November 2008 to last year, Deutsche Bank AG said.
While highly speculative, a sketch of the government’s possible response is emerging from “our discussions in China,” Hong Kong-based economist Ma Jun (馬駿) said in a note dated Friday.
The government would be likely to limit any measures because of the costs associated with the previous package, including asset bubbles, inflation and non-performing loans, Ma said.
China’s government is wrestling with elevated inflation and the threat of a deeper economic slowdown because of the debt crisis in Europe, the nation’s biggest export market, and weakness in the US economy. Deutsche forecasts that China’s growth could cool to 7.3 percent in the first quarter of next year, compared with 9.5 percent in the second quarter of this year.
Stimulus measures would mostly be fiscal rather than monetary, Ma added. Efforts to boost consumption could include consumer vouchers, subsidies for consumer goods, temporary cuts in fees for electricity and water, and temporary tax breaks for small businesses.
The government could also allocate more investment to public housing and “long neglected” agricultural infrastructure, Ma said. At present, 40,000 dams, or about 45 percent of the total, are in need of repair. The labor-intensive services sector could be used to absorb workers from export industries, he said.
Former deputy central bank governor Wu Xiaoling (吳曉靈) said that the government should not expand its monetary or fiscal stimulus because of price pressures, and central and local government debt. Her comments were published yesterday by Financial News, the central bank’s newspaper.
Wu said China’s economy was highly likely to slow next year.
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