China’s Growth Slowing, Will Gov Step In?

Published on Author helvey

According to the Wall Street Journal, China’s economic growth is slowing down. Perhaps they will not be reaching their growth rate goal of 7.5% after all, or, at least, not without some degree of state intervention.  Officials say that the central government would prefer to let market forces bring about the desired  continuance of growth as they seek to establish their economy as a more stable market-oriented one.  However, the government has a number of strategies available to them to spur on growth if necessary, including the PBOC’s cutting of bank reserve requirements, loosening of monetary policy, and more rapid infrastructure investment, to name a few.

According to Richard Silk, “China’s yuan currency has also fallen to its lowest level in a year,” and “Monday’s flash purchasing managers index from HSBC fell to an eight month low  of 48.1 in March from February’s 48.5, with any figure below 50 showing a contraction in activity.”  In response, China’s State Council declared it would, “quickly push out already-decided measures to expand domestic demand and stabilize growth, accelerate preparatory work and construction on major investment projects, and quickly spend funds allocated in the budget.”  While the government may be engaging in stimulus-like behavior, it is avoiding admitting this.  It remains to be seen if it will be pushed to engage in the same outright stimulus behavior of the past. At the end of the day, I think it will be willing to do so in the pursuit of its growth goal.

3 Responses to China’s Growth Slowing, Will Gov Step In?

  1. Is this slowdown in growth actually a good thing? Could this be a function of fewer externalized costs–i.e. shuttering inefficient coal plants, steel mills, or even moving away from developing rural land? There is significant evidence that much of China’s growth is not efficient, let alone sustainable (i.e. dynamically efficient).

  2. I agree with you that the government will probably provide some stimulus measures as I noted in my recent post. However, I also think that China will be willing to sacrifice some growth in the short term to move the economy in a direction better suited for long term growth.

  3. What macroeconomic indicators would indicate that an economy is growing too fast? (There’s plenty of debate on that topic in the US at the Fed and across the Atlantic at the ECB.) And given a particular policy objective, what mix of fiscal and monetary policy might be important, and what specific tools used to implement that? Here that means, for example, whether we should view cutting reserve requirements as a tool of MP rather than something separate. How about infrastructure investment – is that FP, and if so what tool(s) might be used to boost it. In China, perhaps allowing the big national policy banks to lend more is both monetary and fiscal policy, if that’s what’s needed to allow provincial and local government to build more infrastructure.