It doesn’t seem that the Hu-Wen leadership will get to handover to their successors an economy that has put slowing growth behind it. The hit the global economy has taken from the eurocrisis has hurt China’s vast manufacturing industry harder and longer than expected. It now looks as if the slowdown in growth will last well into the third quarter, possibly beyond.
Both the official and the unofficial HSBC purchasing managers’ indices for August were bad news in that regard. The official index fell below the 50 mark dividing expansion from contraction for the first time since last November. HSBC’s version, which reflects more small and medium sized firms than the official index and already below 50, hit its lowest point since March 2009.
Talk of further policy measures to boost growth has intensified. Two interest rate cuts and central bank injections of liquidity via large-scale reverse repos have not had the hoped-for impact. As central bankers in the U.S. and Europe have found, it is not the price or availability of money that is the drag on recovery, it is lack of demand.
China’s policymakers remain wary of aggressive easing and stimulus via infrastructure spending for fear of rekindling inflation and the property bubble that they worked so hard to reduce. The debt overhang from the last round of stimulus, after the 2008 global financial crisis, casts a dark and deeply concerning cloud over policymakers.
This Bystander still thinks they will remain cautious about further easing, hoping that they will be able to get though the year with better than the 7.5% GDP growth that was set as the annual target, all be it by the skin of their teeth. That they were intending to pass on a plumper cushion of growth while setting expectations the longer term structural slowing of the economy will be conveniently forgotten for the moment.