Experts question whether Beijing’s measures will be enough to stimulate the economy.
“It’ll take a lot more to pull China out of what feels like a recession,” said Scott Kennedy, an expert on the Chinese economy at the Center for Strategic and International Studies in Washington.
Plenty of signs are flashing red. In December, Chinese exports suffered a surprise decline, while annual car sales in 2018 fell for the first time in around 20 years.
Preventing growth collapsing
“The problem is that [this] money doesn’t flow into the real economy,” Larry Hu, chief China economist at investment bank Macquarie, said in a note to clients this month.
Rather than fueling a rebound, the central bank’s recent cuts may only “prevent growth from truly collapsing,” said Christoper Balding, a China expert at the Fulbright University Vietnam in Ho Chi Minh City.
More stimulus incoming
In recent months, Beijing has moved ahead with plans for billions of dollars of new railway projects and tax cuts for small businesses. Officials also say they are preparing measures to help the struggling auto industry.
But Beijing’s efforts won’t kick in straight away.
“It will take several more months of easing before the economy and stock market begin to feel the benefit,” said Chen Long, an analyst at research firm Gavekal.
Lessons from the ‘big bang’
China’s plans this time around are small change compared with the “big bang” stimulus it launched in response to the global financial crisis. In 2008 and 2009, Beijing injected nearly $600 billion into its economy to fight off the effects of the global slowdown.
“China still has a lot of ammunition” in terms of the moves it can make, said Jeff Ng, chief Asia economist at research firm Continuum Economics. But he warned that “there are side effects.”
“In view of the extraordinary difficulty that China is facing amid trade tensions, China is willing to halt its deleveraging efforts in order to defend growth,” said Janet Mui, an economist at investment firm Cazenove Capital in London.
Losses in the stock market have increased the pressure on authorities to keep adding stimulus, she said.
The risks of ‘runaway stimulus’
But too much stimulus runs the risk of adding to China’s already worrisome debt levels.
“Chinese policymakers are wary of broad-based stimulus in high dosages,” said Darren Tay, a country risk analyst at research firm Fitch Solutions. “Loosening monetary policy too quickly could indeed cause the yuan to weaken quickly.”
In December, prices of Chinese industrial and manufactured goods rose at a much slower pace than expected. Some analysts suggest this may mean China is again starting to suffer from overcapacity — production that exceeds demand and lowers global prices.
“We believe Beijing is painfully aware of these risks, which is why we do not expect runaway stimulus this time around,” said Tay.
Nanlin Fang contributed to this report.