China: No stimulus.

Stock markets took another hit this week after China announced it has no intention to re-create a massive stimulus plan from 2009.

The L.A. Times reports that the New China News Agency released a statement claiming there will be no new stimulus to “boost robust growth”:

“The statement helped drive stock markets down across Asia Wednesday as investors sought clues as to how the world’s second largest economy would respond to its biggest economic challenge in three years.

Weak foreign demand, a cooling real estate market and diminished bank lending has slowed Chinese economic expansion to a pace not seen since the aftermath of the 2008 financial crisis.

The global economy can ill afford to see China, the world’s second largest importer, skid off the rails, especially at a time when Europe appears to be heading for a deeper economic crisis.

Beijing has already indicated it will act to stabilize growth, but it can’t afford to reproduce its 2009 strategy, which included a $586 billion stimulus and the opening of the bank lending floodgates. That led to asset bubbles and inflation that still hampers the Chinese economy today.”

This is a downer for a lot of people, mainly Europeans, who are freaked out enough over yet another Eurozone crisis. However, stimulus or not, Europe is still looking east as it faces yet another round of economic uncertainty in the run-up to the next Greek elections. It’s now widely accepted that Greece cannot afford to pay back its massive debt–and the Euro is looking pretty shaky.

This did not go unnoticed by China Daily News, which reported that China remains a top destination for European investors:

“Nearly one quarter of European companies operating in China said they will consider shifting investment to markets outside China, while nearly three quarters said China is among their top three destinations for future investment, a survey released on Tuesday showed.

A slowing economy and rising labor costs were seen as the top risks for companies operating in China, the European Chamber of Commerce in China said in its annual business confidence survey …

According to the survey, 63 percent of the companies plan to make new investments in China in the next two years, up 4 percentage points from a year earlier.

The lingering eurozone debt crisis has greatly weakened purchasing power in Europe. Only 13 percent of respondents said the top strategic reason for operating business in China was providing goods and services for the European market, down 9 percentage points from a year earlier.”

What do you think? Is stimulus the answer, or is China being wise and prudent?

Check out more on China, France, America and the world beyond in the latest edition of Carnet Atlantique!

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