While we cannot rule out the chance of a large Chinese stimulus, senior officials are talking this down. In 2008/2009, China injected a whopping 19% of GDP to revive its flagging economy, compared to roughly 6.5% of GDP by the Obama administration at the height of the GFC. The size and scope of the stimulus achieved the desired result but had several undesirable side effects, including accelerating the property bubble and rapid growth expansion of the informal shadow banking sector as speculative fever grew.
From Trivium China:
At his meeting with businessmen on Tuesday, Li Keqiang [Premier of the State Council of the People’s Republic of China] also laid out his views on the economy.
In a nutshell: Things do not look good (Gov.cn).
- “Downward economic pressure is increasing.”
- “[We must] thoroughly prepare to react to difficulties and challenges.”
But Li stressed (again!) that the government’s response to this slowdown will be different than in the past:
- “[We] will not rely on traditional measures.”
Instead, Li wants to take a more measured, precise approach:
- “Macro policies should be stable, precise, and effective in order to counter external uncertainties.”
The top priority will continue to be improving the business environment, with a focus on three areas:
- Eliminating government interference in business operations
- Reducing taxes and fees
- Making financing easier and cheaper to get
Get smart: If you haven’t gotten the message yet, you have not been listening. The government is not going to repeat the massive stimulus that it enacted 10 years ago in response to the financial crisis.