January 17, 2019

China Pours $218 Billion Into the Economy as Growth Slows

China has traditionally used its state-controlled banking system to flood the economy with money when growth slows. Last year, China cut the reserve ratio four times. But economists, small businesses and many others say the mechanism shovels money into big, inefficient companies or into investment bubbles instead of toward the smaller entrepreneurs who need it more.

The cut “will be good for curbing the economic downturn and solving the financing difficulties of enterprises,” said Yu Yongding, an economist at the Chinese Academy of Social Sciences.

“But this is just one policy,” Mr. Yu added, saying it risks pouring money into real estate and the stock market, which would do little to solve the economy’s problems. “We need a lot of other policies to cooperate.”

For several weeks, economists and analysts have speculated that officials could move to push a hefty stimulus package that would give the flagging economy a shot in the arm. But such bold moves have become increasingly difficult for the Chinese government, which is still contending with a huge debt load accumulated over the past decade to spur growth.

Still, many analysts took the move as a sign that China’s leader would be proactive in heading off any worsening slump.

“The central bank has made it clear that this wasn’t ‘releasing the floodwaters’ by providing a huge stimulus comparable to that introduced in 2009, but it is clear that they are redoubling efforts to stabilize the economy and the currency,” Geoffrey Yu, the head of the British investment office of the Swiss bank UBS, said in an email.

“This swift action supports our view that there won’t be a sharp deceleration in the Chinese economy this year and that fears of a major global slowdown are overdone,” Mr. Yu added.

Article source: https://www.nytimes.com/2019/01/04/business/china-economy-central-bank.html?partner=rss&emc=rss

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