China – Stimulus stopped so did the China’s runaway growth

China – Stimulus stopped so did the China’s runaway growth

After car sales growth of 46 percent in 2009 and 32 percent in 2010, the maker of the squat Ben Ben mini car and Changan Star van saw a modest 3 percent rise in the first 10 months of 2011. It also watched its share price plunge.

If Changan (000625.SZ) is hoping for a repeat of the 4 trillion yuan ($628 billion) that China spent on roads and rails and other projects, it may be in for a long wait.

"China’s leaders understand that safeguarding growth is very important, but in 2008 the government had more policy tools they could use," said Liang Youcai, a senior economist at the State Information Centre, a top government think-tank in Beijing.

"They won’t unveil a large-scale economic stimulus anywhere close to the 4 trillion yuan program."

Beijing has reasons to steer clear of big stimulus, including the need to avoid firing up inflation, which remains relatively high.

A local government debt crisis is an awkward side effect of the government incentives in 2008, making stimulus a loaded word.

And a looming 2012 political transition that will see top leaders step down, leaves policymakers aiming for stability, not a big fiscal injection of cash into the economy.

Furthermore, China may have the fiscal leeway to do enough for the economy anyway, with the "fine tuning" that Premier Wen Jiabao has said will keep its economic engine running smoothly, analysts say.

With Europe’s debt-laden economy sinking deeper and the U.S. growth outlook well below trend, China’s export sector — still the biggest engine of job growth for the country of 1.3 billion could be hit hard.

"With its strong fiscal position, Beijing can and should allow fiscal measures to play a larger role in supporting small companies and export-oriented companies in the coming quarters," Qu Hongbin, HSBC’s chief China economist wrote in a recent note to clients.

"This should counterbalance weaker export demand and help China achieve a soft landing."

A reasonably tight labor market also argues against the need for substantial stimulus according to Nomura’s chief China economist, Zhang Zhiwei, who calculates that the ratio of job openings to job seekers remains above one. It was consistently below one
during 2008.

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Posted by Hassan Ali on Dec 7 2011. Filed under Business. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry