Possible Stimulus of an Unknown Size

A recent slowdown in manufacturing prompts the Chinese government to consider policy action. The Economist ponders the government’s next macroeconomic move. While the government promised to inject more money, the precise number is up in the air:

But this mini-stimulus still lacked something that distinguished the earlier package: a price tag. The 2008 stimulus was billed from the start as a 4 trillion yuan package ($586 billion at 2008 exchange rates), an enormous sum that amounted to about 13% of China’s GDP (although the stimulus was scheduled to last more than two years). No comparable total has yet been offered for China’s piecemeal efforts this month.

This omission is not just a statistical oversight. It provides a clue to the government’s deep ambivalence as it considers how to respond to worries at home and abroad. The 4 trillion yuan sum in 2008 showed that the government was prepared to go to almost any lengths to revive growth. That commitment helped to lift the spirits of entrepreneurs, officials and consumers, encouraging them to keep spending too.

The Economist concluded that the 2012 stimulus will be smaller than the 2008 one.

The central government thus seems keen to dispel any suggestion that its 2012 stimulus efforts might entail the same loss of discipline as in 2008. The mini-me stimulus will be both smaller and better behaved.

Bloomberg also reported on the guessing game of stimulus size:

The government’s stimulus response may be as much as 2 trillion yuan ($314 billion), half the size of the package in 2008, Credit Suisse Group AG said this week.

“This set of data is very bad,” said Dong Tao, a Hong Kong-based economist with Credit Suisse. “China now needs some highly symbolic policy moves,” he said, adding that interest- rate cuts are becoming more likely.

[…] China’s stainless steel demand this year may grow at the slowest pace since 2001 and exports may be capped by sluggish demand overseas, Lu Ping, assistant general manager of Baosteel Stainless Steel Co., said May 24.


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