An analysis by Michael Lelyveld
2014-04-21
RFA
Two workers prepare to remove scaffolding at a construction site in Beijing, April 15, 2014. AFP
China's government is taking pains to deny reports that it has launched a "mini-stimulus" program as it tries to stop a slide in economic growth this year.
In state media coverage, the government has been walking a fine line between responding to economic challenges and concerns that confidence may weaken if it is seen as taking any new measures at all.
The latest balancing act began on April 2 with a statement by the State Council, or cabinet, that it would extend a small business tax break, push railway construction and speed renovation of run-down urban areas after a meeting chaired by Premier Li Keqiang.
The steps were immediately portrayed as a "mini-stimulus package" or a "targeted stimulus program" in analysts' comments reported by both Western and Chinese media, including Bloomberg News, The Wall Street Journal and the official English-language China Daily.
The government decided to pursue "a slew of pro-growth measures ... after a run of disappointing economic indicators raised concerns that economic growth in the first quarter might slip below the official target," China Daily said.
The official Xinhua news agency said the government was taking steps "to stabilize [a] faltering economy," while in a separate report, China Daily cited a "railway stimulus plan."
"Investment has again emerged as a key means to prop up the economy," the paper said on April 4.
But within days, the government reacted sharply to perceptions that it was falling back on anything that might remotely resemble stimulus policy after resisting calls for a major pump-priming since taking office in March 2013.
China's economy "needs no stimulus," said a strongly-worded Xinhua commentary on April 7, insisting there was "no need to panic" about slower growth.
Any talk of a stimulus was "misleading," and those expecting a repeat of the 4-trillion yuan (U.S. $645-billion) spending package announced during the 2008 economic crisis "are likely to be disappointed," the signed commentary said.
The State Council measures were "nothing new" and were only "follow-up policies" from previous announcements, it said.
"It is more appropriate to interpret the measures as 'looking into the future while taking the current economic situation into account,' rather than a 'new round of mini-economic stimulus,'" said Xinhua.
Perceived sensitivity
The denials, including contradictions of Xinhua's own reporting, suggest sensitivity on several counts.
The first is the economic growth rate itself, officially reported as 7.4 percent for the first quarter, falling below the government's yearly target of a 7.5-percent rise in gross domestic product (GDP), the broadest measure of the economy.
Before the government's announcement on April 16, analysts' estimates for the quarter ran as low as 7.2 percent, prompting concern that real growth could be considerably less, given the inaccuracy of data from the National Bureau of Statistics (NBS).
As it was, the official first-quarter growth from the year-earlier period hit an 18-month low, but some analysts focused on slower annualized growth from the previous quarter, suggesting more serious weakness.
The investment bank Goldman Sachs estimated that the seasonally adjusted quarter-to-quarter growth rate dipped to 5.4 percent, down from 8.4 percent in last year's fourth quarter, The Wall Street Journal said.
Even a "mini-stimulus" may raise market concerns that the economy is in worse shape than the NBS says it is. The government appeared anxious to head off that kind of speculation at the pass.
Speaking at the opening of the annual Boao Forum for Asia on April 10, Premier Li firmly rejected stimulus remedies.
"We will not resort to short-term stimulus policies just because of temporary economic fluctuations, and we will pay more attention to sound development in the medium and long run,' he said, according to Xinhua.
The second issue is stimulus policy and its effects.
State media has grown increasingly vocal in blaming the anti-crisis stimulus package for China's current economic and environmental woes as the government makes its case for more sustainable development.
"The sweeping measures did help China's economy recover rapidly but also led to overcapacity, skyrocketing house prices and a credit boom, all of which the authorities are now trying to rein in," the Xinhua commentary said.
The third issue is the political implication of blaming stimulus policies, differentiating current approaches from those followed by the previous leadership of former President Hu Jintao and Premier Wen Jiabao.
The retired leaders have vanished from public view, while their policies have become associated with excessive investment, pollution and corruption. President Xi Jinping and Premier Li have drawn sharp contrasts with the old administration and, in political terms, may not be able to afford a repeat of a stimulus package now.
'Nothing to be done'
Derek Scissors, a resident scholar at the American Enterprise Institute in Washington, argues that another stimulus would not have the desired effect, in any case.
"It isn't going to do the slightest bit of good," said Scissors. "At the aggregate level, this mini-stimulus isn't going to do anything, and a large stimulus package wouldn't do anything."
"Other than painful reforms, there's nothing to be done," he said.
One reason, Scissors argues, is that China is really still on a perpetual stimulus, fed by excess money supply and loans from state-owned banks.
He compared the monetary situation with an overflowing pool, making the debate about the "mini stimulus" a question of whether to pour more in or not.
"The pool was probably two-thirds full in 2009. They poured water in and the water level rose. The water level is now above the pool," said Scissors.
"You're not putting water in the pool anymore. The water is just spilling out somewhere else," he said.
Scissors said the Xinhua commentary was right in pointing out that the measures cited by the State Council were not new.
But the larger question is whether the government has really turned away from stimulus policies of the past.
"They announce variations in their permanent stimulus program, and people act like it's a new stimulus program, but it's not. It's just what they always do," Scissors said.
The Xinhua commentary forcefully argued that there is no new stimulus, while ironically glossing over the policies that have remained in place over the longer term.
"The smart ones have got it. There is no sign of a monetary and fiscal policy shift," it said.
Economic 'package'
Since the commentary, a series of state media reports have continued to apply the "mini-stimulus" label to the government's response, while others have tried to split the difference.
According to a Xinhua report on April 11, the government is "trying to bolster growth with micro-measures and innovative reform initiatives, instead of short-term stimulus policies."
The government "should act quickly in response to social tensions," said Yu Yongding, director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, in a China Daily commentary.
But Yu warned, "If the government 'blinks' and responds with another massive credit stimulus, ... the damage could be fatal."
In the wake of the first-quarter GDP report, the State Council announced a series of modest measures to ease lending by some rural banks and promote hiring with assorted tax breaks for businesses.
Xinhua referred to the moves as a "new economic package," but did not use the term "stimulus."
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