No Big Stimulus for China Even if Europe Breaks Up

English: Made in China - in Chinese (Photo credit: Wikipedia)

Even as China’s twin manufacturing surveys dropped to its weakest readings since November, a further sign of a slowdown in its economy, economists do not see major stimulus measures similar to the massive 4-trillion yuan ($629.6 billion) stimulus package it passed in 2008. While a worsening of Europe's debt crisis could trigger a much more aggressive response from China policymakers, a huge stimulus package will not be necessary because indicators such as fixed-asset investment, housing sales, bank credit and exports have stabilized, suggesting that recent monetary policies such as the cuts in banks’ reserve requirement ratios (RRR), are already having an impact. “In our view, Chinese policymakers recognize that if the euro zone breaks apart, it would not be a short-term development. Therefore, cyclical overreaction would have only limited benefits,” Barclays’ economists Huang Yiping, Chang Jian and Yang Lingxiu wrote in a report.

Instead, it might be better for China to accept slow growth and continue to focus on rebalancing and restructuring its economic model. “Even if it becomes necessary for the government to do more to support growth, we believe it might launch a large program to train migrant workers, instead of undertaking more infrastructure projects,” according to Barclays. ... Continue to read.

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