Breakingviews - Bold Chinese stimulus will have to wait

A construction site worker is seen behind China's national flag in Beijing, China, January 19, 2016. REUTERS/Kim Kyung-Hoon

HONG KONG (Reuters Breakingviews) - Bold Chinese stimulus will have to wait. The country’s gross domestic product grew 6.4 percent year-on-year in the fourth quarter, down from 6.5 percent in the third. Growth is cooling faster than Beijing wants, but not fast enough to warrant the aggressive monetary and fiscal steps some bureaucrats, and many investors, would like to see.

Full-year expansion in the $12.5 trillion or so economy was 6.6 percent, broadly in line with the official target of around 6.5 percent. That masks some deeper concerns, however. A full-blown trade spat with the United States, along with some softness in domestic consumption, combined to erase about a quarter of China’s stock market value last year. It also prompted jitters that growth may be abating faster than Beijing anticipated.

The tepid policy response has been surprising. Many economists reckoned the slowdown would prompt a return to the old playbook: a credit-fueled investment spree. Things looked to be heading in that direction after a State Council directive in July called for more fiscal support. Since then, the government has stepped up tax cuts, quickened the pace of infrastructure project approvals and slashed the amount banks need to lock away as reserves.

There are few clear signs of a positive response, however. Research outfit Capital Economics reckons its broad measure of total credit grew just 9.8 percent in December, the slowest pace in more than a decade. Fixed-asset investment for 2018 grew 5.9 percent, the lowest level since at least 1996, according to figures released on Monday alongside the GDP data.

Officials seem conflicted. The deleveraging campaign that started in 2017 remains firmly in force, undercutting calls to support growth. Beijing has, for instance, needed to force local governments to borrow more from capital markets for public building and digging projects. The finance ministry promised additional tax cuts beyond the nearly $200 billion sought last year, but also may push through a tighter-than-expected 2.8 percent budget deficit aim this year, according to Reuters.

The upshot is that stimulus is proving slower and more complicated than in earlier rounds. Officials are unlikely to embark on a more aggressive spending programme to revive growth – and markets – until they receive a less ambiguous signal from on high. That probably will require considerably slower growth. For now, expect more talk than action.


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