China’s economic caution is a problem for us all

BEIJING, CHINA - MAY 26: A restaurant worker sells food in on the street after inside dining was banned by authorities due to a COVID-19 outbreak, on May 26, 2022 in Beijing, China. China is trying to contain a spike in coronavirus cases in Beijing after hundreds of people tested positive for the virus in recent weeks. Local authorities have initiated mass testing, mandated proof of a negative PCR test within 48 hours to enter many public spaces, closed schools and retail stores, banned gatherings and inside dining in all restaurants, and locked down many neighborhoods in an effort to maintain the country's zero COVID strategy. (Photo by Kevin Frayer/Getty Images)

By Daniel Moss, Bloomberg

China’s central bank protests too much. Beijing is wary of overdoing its efforts to shore up the troubled financial system and faltering economy, but continues to be pushed into rolling out new measures.

Fresh steps are announced almost daily, though many are modest in scope. China faces at least another year of lackluster expansion, and global growth will endure significant challenges if the tyranny of incrementalism continues. There are few grounds for optimism.

The latest initiatives from the People’s Bank of China point to deepening concerns. Investors were surprised by cuts in official interest rates last week, though the size of the adjustment was meagre by world standards. State firms are being pushed to extend more credit and $29.3 billion in special loans will be offered to ensure property projects are delivered to buyers.

The yuan is near its weakest in two years and down more than 5% against the dollar over the last 12 months; officials likely see some depreciation as a way to bolster exports, provided the currency’s retreat isn’t dramatic.

On Wednesday, China’s cabinet outlined a 19-point package to keep the economy afloat. That sounds impressive, though the details were less encouraging. The commitment of a further 1 trillion yuan ($146 billion) in funding, largely focused on infrastructure, won’t pack an enormous punch.

It’s safe to assume more developments are in the works. A PBOC-backed newspaper last week endorsed additional support in a front page story. No wonder economists project further rate cuts and additional steps to put a floor under the decelerating expansion — assuming there’s still one to protect. Leaders look like they are constantly playing catch-up. Objectives appear to in competition: No sooner are plans to shore up growth announced than officials remind us they are loath to embark on large-scale juicing of the economy.

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