Markets need to recognise that the country is not reverting to its old economic and financial playbook
email rounding up the latestThe writer is president of Queens’ College, Cambridge, and an adviser to Allianz and Gramercy
Economists and Wall Street analysts have been disappointed in China’s economic performance, holding out hope that this might prompt the government into a stimulus effort similar to the one seen in 2008.as a key engine of global expansion. However, the more likely scenario is continued weak growth. The primary policy question now is how quickly the government will shift away from stimulus measures to a faster fundamental overhaul of its growth strategy.
This problem has been exacerbated by several factors, including regulatory over-reach, ongoing geopolitical tensions and lower foreign direct investment inflows. There have also been concerns about a potential Japan-style deflationary trap, especially in light of declining consumer and producer prices. Some foreign investors have asked whether “China is investible”.
The Chinese authorities have announced over recent weeks a series of small monetary, fiscal, and regulatory measures. These measures have thus far been perceived correctly as piecemeal and lacking conviction. Yet many still believe they will eventually accumulate into an impactful critical mass. There are problems, however, with this view.
China faces not only growth challenges but also significant financial issues, including pockets of high indebtedness that could easily transform into systemic risks. This limits the scope for old-fashioned stimulus. The heightened sensitivity surrounding the struggling property sector, in particular, makes households more cautious on spending, further diminishing a growth driver.
Danmark Seneste Nyt, Danmark Overskrifter
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