Recent decisions by the Chinese government on stimulus say one thing but imply another.
Recent headlines on economic policies from China meant a solid “no” when it came to another large-scale stimulus plan. However, at the same time, speculation has grown that Chinese officials will eventually consent to more stimulus, or more accurately, alternate forms of stimulus, than they will publicly admit.
Back in 2008, the high profile 4 trillion yuan ($630 billion) mass stimulus package, pushed out by the Chinese government to counter the 2008-09 global financial crisis, has now been seen by many as the cause behind inflated real estate market and the mountain of local-government debt. This time around in 2012, faced with signs of another potentially sharp economic slowdown, the government would not embark on a 2008-style stimulus plan. As the official Chinese news agency Xinhua reported May 29, “The Chinese government’s intention is very clear: It will not roll out another massive stimulus plan to seek high economic growth. The current efforts for stabilizing growth will not repeat the old way of three years ago.”
The news sent shares across Asia falling as many had hoped to see another round of stimulus from the Chinese government, which pumped up demand in many markets around the world in 2008. Yet other reports from China showed that interest is still very much alive for investments in certain sectors such as infrastructure projects, energy-efficiency initiatives, and investment from private sector in state-dominated industries such as railways. In April 2012, state’s National Development and Reform Commission approved 254 new investment projects worth tens of billions of dollars; in May, $20 billion worth of projects in two steel factories were approved and became highlight of the late mini boom of investment in China.
The longer term effect of such stimulus-induced growth model and preferential treatment of certain projects, and how this would lead to the goal of a more sustainable and better growth, as Premier Wen had in mind in his speech back in March, is yet to be seen. With the biggest political power transition in a decade pending in Beijing, 2012 will prove to be a year where a cautious strategy for both economic and political change for China is needed.