With Growth Slowing, Will China Launch a Stimulus?

Is China ready to launch further stimulus? That’s the question many analysts are asking following a string of gloomy signs in the economy. The latest: Two purchasing managers’ indexes released today suggest limited improvement in manufacturing in March. That’s particularly disappointing in the month following Chinese New Year, a period that typically shows a rebound.

The HSBC-Markit PMI fell to 48 last month, (below 50 shows contraction), its lowest level since July. While a separate government PMI came in slightly above expectations, measuring 50.3 in March, it was still “substantially lower than the average of 51.3 in Q4 2013,” pointed out Louis Kuijs and Tiffany Qiu, Hong Kong-based China economists at Royal Bank of Scotland, in an April 1 research note.

Comments made by premier Li Keqiang last week and reported on Friday suggest that the government is ready to take steps to boost growth. “We have gathered experience from successfully battling the economic downturn last year and we have policies in store to counter economic volatility for this year,” Li said, reported the Global Times on March 30. “We will launch relevant and forceful measures according to what we have planned in our government work report,” he said.

What are those measures likely to be? According to the work report Li released at last month’s National People’s Congress, they include speeding up construction in railways, highways, and irrigation projects in central and western China, as well as building more affordable housing. “He basically confirmed that the government will take some measures to support growth. We think this is likely to include pursuing a less firm overall monetary stance,” wrote RBS economists Kuijs and Qiu.

According to a survey by Bloomberg News, the median estimate by analysts for growth this year has fallen to 7.4 percent. That’s below the official target of “about 7.5 percent,” set by Beijing last month. It would be the weakest reported annual economic growth since 1990.

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