February 27, 2024

I.H.T. Special Report: Global Agenda: More Stimulus May Not Be an Option for China

Yet with inflation high — food prices in August were 13.4 percent higher than a year earlier — the family is still finding it difficult to pay the bills. This year they had to sell much of their farmland near the town of Lichuan to the local government for a low price, as officials across the country rush to buy land to finance local development.

The changing fortunes of Ms. Qun’s family echo the changes in China since 2008, when the government enacted a 4 trillion renminbi, or $626 billion, stimulus program to help the economy weather the global financial crisis.

Those changes also show why China is reluctant to introduce another stimulus package now, despite growing nervousness about the possible domestic impact of Europe’s debt crisis. Stimulus would only add to inflation, as well as spur more local borrowing to finance development, which would pump air into an already bubbly real estate market.

As China travels to the annual meetings of the International Monetary Fund and World Bank this weekend, it is deeply concerned about contagion from economic difficulties in Europe, its biggest trading partner, and in the United States, one of its largest debtors.

But Beijing’s main message to the multinational lending community is likely to be a pragmatic one: we may be growing, but we have our own worries, so don’t expect much help from us.

“The government will be relatively cautious and take a wait-and-see attitude” at the meetings, said Wang Tao, a Hong Kong-based economist for UBS. Until there are clear signs of global growth tumbling, she added, “they are unlikely to do anything” to stimulate growth at home and thus demand from foreign markets.

China’s economy is robust, Ms. Wang said, despite the fact that indications of a slowdown in global demand have led senior officials to predict growth of less than 9 percent for 2012, and banks estimate 8.7 percent or even 8.4 percent.

“Who says China has to grow at over 9 percent a year?” Ms. Wang asked.

“China’s not going to collapse,” she continued. But the country has “other concerns, such as inflation, debt and asset bubbles in the property market.”

Stephen Green, an economist in Shanghai for Standard Chartered, said “China is facing a bunch of challenging issues.” He, too, singled out local government debt and inflation, both burgeoning in large part because of the last stimulus plan.

Consumer prices in August rose 6.2 percent on average across the country. That figure is down from the July average of 6.5 percent, but still high.

Local government debt is growing at a pace that alarms some economists. The government says local debt stands at 10.7 trillion renminbi, but Moody’s Investors Service has estimated the total local debt at 14.2 trillion renminbi.

Mr. Green, of Standard Chartered, puts the sum at around 14 trillion renminbi, or about a third of China’s 2010 gross domestic product of $6.05 trillion.

He also estimates that up to 9 trillion renminbi of that is nonperforming and will require a government bailout. If he is right — and he is not alone in his prediction — that raises an important question: after the United States’s debt crisis of 2008, and Europe’s of 2011, is China facing one of its own?

“I think we can only do things this way for about four or five years more, and then there will be a debt crisis,” said an economist based in China, who asked for anonymity because of political sensitivities. Debt levels since the 2008 stimulus have shown an “unsustainable pickup,” the economist said.

Some economists do think that China has the tools to avert a bust, or at least to mop up after one. That is because the central government, having in essence created the problem, can then take virtually unilateral action to solve it.

China’s debt problem isn’t “commercial loans that went bad because of an asset bubble popping,” but rather “public infrastructure financed through the banking system,” with local government support, Mr. Green said.

“At the central level it takes a lot of time to make a decision, but when they do they implement it with force,” he added.

Article source: http://feeds.nytimes.com/click.phdo?i=447cd55bb504957f4760ceeec4676eb5

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