Jeremy Mark
As Beijing has intensified its efforts in recent weeks to overcome China’s economic slowdown, speculation has centered on the prospects for a combination of monetary easing, government spending, and investment incentives that will create a “bazooka” stimulus. But the measures announced so far to address the country’s property crisis, falling prices, hoard of local-government debt, and plummeting business and consumer confidence, look unlikely to produce a sustained rebound.
A more apt metaphor can be found in the recent satellite photograph of salvage vessels trying to refloat a Chinese submarine that sank while under construction. The reality is that the seventeen trillion dollar Chinese economy is weighed down by problems that will require much more than the current policy response.
Chinese leader Xi Jinping apparently has opted for a mid-course correction emphasizing lower interest rates, reduced regulation of the property market, stock market pump-priming, and debt swaps for local governments. Plans for a budget increase are expected toward the end of this month, but hopes are fading for the kind of spending that would jump start domestic demand. With millions of empty and unfinished apartments, high youth unemployment, falling salaries, and policies prioritizing high-tech industries over sectors that are the backbone of the economy, China is on track to muddle through. The outlook is for more of the status quo: businesses that don’t invest, consumers who won’t consume, and local governments that can’t deliver services.
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