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China’s rulers seem to have given up on a slowing economy

Men 2011 american economic review Published an influential article titled “Growing Like China”. Its authors, including his Zheng Song of the Chinese University of Hong Kong, have attempted to explain China’s unique pace and pattern of development. The title was well received as well as the discussion and was reflected in various papers such as ‘Innovating like China’, ‘Investing like China’ and ‘Internationalizing like China’.

But it’s not growing like China this year.thanks to its depth Wealth stagnation When Government’s “no corona” policyAs each virus outbreak requires a lockdown, Nomura, Morgan Stanley, UBThis is well below the official target of 5.5%.

Chinese currency is also declining. On September 16th, it took him more than 7 yuan to buy a dollar for the first time since July 2020. gdp The road China envisioned earlier this year and the tough one that now seems more likely.Chinese gdp In 2023, it could be more than $2 trillion below its January forecast, according to another bank, Goldman Sachs.

It’s not like China to settle for such a poor performance. To date, economists have marveled at its ability to stimulate spending as needed to meet growth targets and properly employ a busy workforce and factories. Even after the 2008 global financial crisis, China’s gdp We quickly caught up to where we would have been if the crisis had not happened. Impressed by this result, Yi Wen of the Federal Reserve Bank of St. Louis and Jin Wu of Tsinghua University wrote another “China-like” paper entitled “Withstanding a China-like Great Recession”.

China, like other countries, eased monetary policy when the global financial crisis hit, they argued. But in other countries, businesses and consumers were reluctant to borrow even at the lowest interest rates. By contrast, in China, state-owned enterprises and local government lending institutions (which invest in infrastructure and other civic projects) eagerly borrowed from Chinese banks at the behest of the government. Other countries pressed with strings. China had other threads to pull.

So why can’t China withstand this year’s slowdown like it has in the past? The fiscal deficit, broadly defined as including off-budget borrowing, will increase this year.but only about 3% gdp, according to Goldman Sachs.Fiscal fluctuations were like 4% gdp The two-year period from 2008 to 2010 increased over the two-year period from 2008 to 2010. And it got even bigger in response to China’s real estate slowdown in 2015. Businesses played a minor role in 2008-2009, but this year’s stimulus package is dominated by tax cuts for businesses. If corporations knew how to spend money better than governments, it might be more efficient. However, if companies choose not to use it at all, it may become less effective.

Local governments and their financing tools that led the stimulus package in 2008 are now less bold. The real estate downturn has hit land sales, which accounted for about a third of last year’s revenue. And the signs of financial trouble are not limited to the ledger. 80 of the 111 cities were tracked to fill the budget holes. Southern Weeklymainland newspapers increased the amount they collect in fines last year. Yulin City, Shaanxi Province, fined him 66,000 yuan ($9,500) to a grocery store that sold 2.5kg of substandard celery. A state-owned bus company in Lanzhou, the provincial capital of Gansu province, has come up with the ingenious idea of ​​paying the outstanding salaries of some of its employees. The additional loan itself could not be applied for, the employee offered to take out a loan himself, which the company promised to repay.

China’s monetary policy is slowing due to a lack of eager borrowers. This is similar to what other great powers did after the global financial crisis. China has cut various interest rates, including cutting its benchmark deposit rate for the first time since 2015.

In principle, central governments could do more to restore growth. It could help increase spending or fill financial gaps suffered by lower levels of government. This has enabled local governments to issue a further 500 billion yuan worth of “special bonds” (which are supposed to be repaid with proceeds from infrastructure projects financed by local governments). However, this fell short of many analyst expectations and demands.

China’s leaders may be trying to avoid past mistakes. past success. Chinese President Xi Jinping and Premier Li Keqiang took office in 2013, years after the financial crisis, and the unwanted fallout of China’s stimulus measures was keenly felt. Intensive spending by many departments of the state has left overcapacity, distorted production patterns, and high debt. Lee has repeatedly promised not to resort to “flood-like” stimulus, but this is a veiled reference to the past.

From hero to zero

But the change in approach has a simpler explanation. Xi Jinping is deeply invested in maintaining a “no coronavirus” regime, which he said is evidence of China’s excellent social model. Local governments are under pressure to contain infections. A prejudice that would distract them from all-out efforts to boost public investment, even if funding were available. Additionally, the ever-present threat of lockdowns has shattered consumer and entrepreneurial confidence. Additional government spending is therefore less effective in stimulating private spending. Other countries may overtake their own economies this year. But no country is fighting covid like China.

https://www.economist.com/finance-and-economics/2022/09/20/chinas-rulers-seem-resigned-to-a-slowing-economy China’s rulers seem to have given up on a slowing economy

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