Mint Quick Edit China’s ‘stimulus’ that wasn’t: Tea leaves to read
Subscribe to enjoy similar stories. Amid much anticipation, China on Friday unveiled a $1.4 trillion economic support package, but left many disappointed, given the absence of any direct measures to address overall demand.
Its claim to the label “stimulus" is doubtful, since it is mostly aimed at enhancing the debt quota of local governments, so that they can raise new funds to repay their “hidden debts", or off-the-book public loans raised through special financing vehicles to dodge direct-debt caps. This hidden debt has piled up so high that Chinese policymakers are worried about potential fiscal shocks.
But what the package will do is simply pay back this debt through more formal loans, implying that local governments borrow from Peter to pay Paul. This might clean their books and curb risks, but what China’s economy requires is a boost that puts money in the hands of people, so that they spend more and deflationary pressures ease.
Some observers surmise that a real fiscal injection is being held in reserve for use once Donald Trump’s trade barriers go up against China’s exports, which may face a blanket 60% tariff. Beijing’s broader response will be watched by all as the world heads for times of trade turbulence.
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