Advertisement
YOU ARE HERE: LAT HomeCollections

China says no to another massive stimulus plan to boost economy

The nation indicated its intentions in an official statement, which helped drive stock markets down across Asia as investors sought clues as to how the world's second-largest economy would respond to its biggest economic challenge in three years.

May 30, 2012|By David Pierson, Los Angeles Times
  • Analysts say China is introducing modest stimulus measures, which appear to include infrastructure projects such as airports, subsidies for energy-efficient household appliances and an invitation for the private sector to invest in state-dominated industries such as railways. Above, workers guide a glass panel as it is positioned at the construction site of a commercial building in Beijing.
Analysts say China is introducing modest stimulus measures, which appear… (Ng Han Guan, Associated…)

BEIJING — China is dampening expectations that it will use another massive government stimulus to stimulate its economy, even as it's giving the green light to more infrastructure projects.

"The Chinese government's intention is very clear, it will not issue another large-scale stimulus plan to boost robust growth," the official New China News Agency said in an article published Tuesday.

The statement helped drive stock markets down across Asia on Wednesday as investors sought clues as to how the world's second-largest economy would respond to its biggest economic challenge in three years.

Weak foreign demand for its exports, a cooling real estate market and diminished bank lending have slowed Chinese economic expansion to a pace not seen since the aftermath of the 2008 financial crisis.

Beijing has already indicated it will act to stabilize growth, but it can't afford to repeat its 2009 strategy, which included $586 billion in public spending and the loosening of bank credit to businesses and consumers. That led to inflation, skyrocketing public debt and asset bubbles that still bedevil the Chinese economy today.

"The Chinese government will not use stimulus money to reach the goal of 'stable growth' like they did last time because it's unsustainable," Tuesday's New China News Agency article said.

Still, speculation had grown in recent days that China's officials would consent to more stimulus than they would admit to publicly.

In recent days, municipal officials from around China were seen at the powerful National Development and Reform Commission's Beijing headquarters hoping to get approval and funding for new projects.

The mayor of Zhanjiang, a city in southern Guangdong province, was photographed walking out of the commission's offices Sunday kissing approval papers for an $11-billion plan to create a steel manufacturing base.

"Everyone was double-parked in government cars last week," said a storekeeper across the street Wednesday who would give only his last name, A (an ancient and rare surname descended from the Mongols).

Analysts said China is shooting for a modest increase in government spending, or what Standard Chartered Bank economist Stephen Green called a "mini-me" stimulus.

China "is introducing a measured but still significant set of stimulus measures, which should begin to affect growth in August-September," Green wrote in a research note.

Those measures appear to include infrastructure projects such as airports, subsidies for energy-efficient household appliances and an invitation for the private sector to invest in state-dominated industries such as railways.

China's central bank could also reduce the amount of capital lending institutions must hold in reserve and lower benchmark interest rates to spur growth.

Some analysts lamented that China appears to be using the same playbook from 2009 to stave off a slowdown.

"Many government officials argued repeatedly during the past year that tolerating slow growth is critical for rebalancing the economy, improving the quality of growth and sustaining it at a rapid pace," economists at Barclays wrote recently in a report. "Yet the government is already implementing a second stimulus package. Near-term growth may be well supported now, but what about next year and the year after?

"These beg the more fundamental questions if whether the economy can ever graduate from the state-investment-driven stage and whether the economic transformation will ever happen." .

david.pierson@latimes.com

Advertisement
Los Angeles Times Articles
|
|
|