Why Another Major China Stimulus Package Is Not Coming

Tyler Durden's picture

When might the government roll out another stimulus? Have local governments already announced major stimulus? Will the economy grow at a much slower pace than targeted by the government if no new stimulus is adopted soon? Could the country/industries/companies survive without another stimulus? These are some of the recent more frequently asked questions.

UBS: Don’t Hold Your Breath for another Stimulus in China

Indeed some market participants seem to be eagerly anticipating or hoping for another stimulus in China, and each day that has passed without a big policy announcement seems to have depressed the market further. While the Chinese government has been very concerned about the economic slowdown and has taken policies to support growth, we would not be holding our breath for another big stimulus. The previous stimulus in 2008-09 did lift growth much higher than otherwise would have been, but the excessive credit expansion also worsened the imbalance in the economy and left serious negative consequences which are still been dealt with today. Chinese government has clearly recognized this and is keen to avoid making a similar mistake this time. Of course, the slowdown in export and in the overall economy is also much milder compared with 2008-09. Importantly, the lack of labour market distress so far has made it less urgent to come up with any big stimulus.

This is not to say that the government has done little or will do little to support growth. Indeed macro policies have changed to supportive of growth since early this year and this has intensified since mid-May. The policies taken so far include fiscal (tax cuts for small businesses, subsidies for some appliances, pension increase, and more spending on social housing), monetary (increase of base money supply through RRR cuts and reverse repos, increase of banks’ lending quota, and 2 interest rate cuts), and credit and quasi-fiscal (easing of lending to the property sector, local government platforms and some sectors, approval and launch of more government investment projects). Among all these, we continue to believe that the measures to increase public investment, to be financed largely by bank credit, will be the most important ones in the near term.

The government has also been trying to encourage private investment in energy, utility, transport and service sectors including by promising easier entry and access to credit, but we think it may take some time before such investment can take off. Most recently, the State Council announced on July 30 that the government will support industrial upgrading including by providing interest subsidies for enterprises to invest in new technology and techniques, more advanced equipment, energy saving process and materials, and advanced information and automation systems. Banks are also encouraged to increase lending to such investment projects.

What about the many “regional stimuli”, including in Changsha and Guizhou? Should we tally up the regional investment plans and count these as stimulus? Not really. While the central government is clearly trying to support growth and investment in the inland regions, we think the many regional stimuli are largely wishful thinking of local governments. The realization of such ambitious investment plans depends crucially on sufficient financing, but banks have been more cautious this time and the overall credit policy is still closely managed by the central government. In addition, the central government’s insistence on not relaxing the property policies wholesale has put limited local governments’ ability to use land/property to finance ambitious investment projects.

Nevertheless, with the continued implementation of the existing pro-growth measures we think GDP growth can still be close to 8% in 2012. In the coming months, we should see bank lending to expand at a steady pace, with the share of medium and long term loans rising gradually, which should help support a modest and investment-led recovery in Q3 and Q4 2012. Industrial profits are down and may continue to be depressed for 1-2 quarters with the ongoing decline in some prices and inventory adjustments, and some companies may not survive this cycle, but we do not foresee major macro risks because of this. Some adjustment and industry consolidation in an economic downturn may not be bad, and many listed companies may emerge from this cycle stronger and more efficient. The ride, of course, may not be pretty.

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I think I need to buy a gun's picture

we don't need anymore stimulus everything is fine

GetZeeGold's picture



Another Major China Stimulus Package Is Not Coming


No stimulus.....but they've just given birth to 30 new ghost cities.


bigwavedave's picture

They will print. They all print. It is what they do.

Freebird's picture

Just buy a couple of investment apartments in Shenzen - she'll be fine

ACP's picture

Regional stimuli? Sounds good to me!

Make sure it goes all to Long Dong (Guangxi, China).

Or for that matter, Fucking, Austria: http://en.wikipedia.org/wiki/Fucking,_Austria

As a reminder of stimuli ONGOING: http://research.stlouisfed.org/fred2/series/WOTHAST/

saladinw's picture

Its like this. China has learned its a big game of chicken of which gov will blink first and stimulate.  China will wait to have the US and europe stimulate first so they dont have to stimulate/print/ deficit as much.

jimmyjames's picture

China has been no slacker when it comes to providing stimulus/printing and i doubt they can wind it down as smoothly as some think-


ebworthen's picture

"Chinese stimurus?  You Amelicans so phunny!  We let you fail, and crean up de peaces.  Hah, hah, hah!"

GetZeeGold's picture



Just sit back and buy Ben Shalom's subsidized gold......this workin stuff is for suckers.


jimmyjames's picture

Nevertheless, with the continued implementation of the existing pro-growth measures we think GDP growth can still be close to 8% in 2012.


What would China's or for that matter any countries GDP measure at if the central bank balance sheet expansion numbers were removed from the equation-

chump666's picture

Inflation and riots on a global scale, should finally f*ck that bond bubble

q99x2's picture

Nice outfit. I mean the rig. You know the fix.

HaroldWang's picture

Great! Thanks for ruining my fantasy of a China, US and ECB three-way of orgiastic stimuli. Oh, the horror!

Blopper's picture

When ZH suggest to sell, does that mean buy?

GetZeeGold's picture



You should probably consult CNBC for a second option before you do anything rash.


Arnold Ziffel's picture

Inequality in China is still astounding considering that 50% there still live on $1 a day according to a BBC show I watched a few weeks ago.  That's in contrast the the New Billionaire Bankers and RE Developers created by the massive stimulus package in 2008. Some "trickled down" but not nearly enough it seems.

As far as China's RE Bubble...it's gonna be an epic full feature event when it Bursts taking Australia down with it since OzLand is very dependent on China demand for resources such as coal and iron.

Elmer Fudd's picture

I just got an email from an American friend who happens to own a business and currently in Shanghai, and to copy and paste part of it, "Big stimulus package for construction/infrastructure repairs has been announced. "   So who the f*k knows anyways.

Blopper's picture

Aww, man. Is that so? Golly, another rally cumming up!

poldark's picture

The BDI is just off its 2008 low and still heading south. Not good for China.

setter3's picture

"China prepares vast stimulus as a slump threatens Asia" Pritchard