China’s stimulus plans won’t work – and that’s bad news for us

afr.com:

Analysts are slashing their forecasts for iron ore prices – Australia’s most lucrative export – as it becomes increasingly clear that Beijing is struggling to revitalise its frail economy.

Concerns about anaemic Chinese demand were heightened by figures released on Tuesday that showed Chinese imports plunged in July – marking the fifth consecutive month of falling imports – while exports dropped for a third straight month in July.

Concerns about anaemic Chinese demand were heightened by figures released on Tuesday. Bloomberg

Although Beijing has unveiled some modest new stimulus measures, it has so far failed to address the urgent need to rebuild battered confidence in the country’s private sector.

Sluggish domestic demand and the widely held view that Beijing still favours state-owned enterprises mean that sentiment among private business owners – a group that accounts for most of the economy’s dynamism and hiring – isn’t likely to turn around, at least not in the near-term.

Instead, Beijing has only paid lip service to this issue. Last month, it released a slew of measures aimed at making country’s private sector “bigger, better and stronger”.

These included plans to level the playing field between private firms and state-owned enterprises, and to make it easier for private firms to both borrow and collect payments from governments and state-owned enterprises.

Not surprisingly, China’s private sector – which is responsible for about 60 per cent of China’s total output and 80 per cent of urban employment – responded with considerable scepticism to Beijing’s latest peace offering.

After all, Beijing has previously made similar pledges to reduce the competitive advantages enjoyed by state-owned enterprises, without