Don’t Hold Your Breath For Chinese Stimulus, GDP Too StrongApril 16, 2014
China watchers and global investors have been speculating at the prospect of some sort of Chinese stimulus package. With GDP coming in above estimates (7.4% vs 7.3%) and some officials talking down the idea of a new stimulus, we think the odds are low for something substantial. Indeed, any sort of large scale stimulus package aimed at boosting growth would surely have to be accomplished through juicing fixed asset investment, which is exactly what the Chinese want to slow. Anyhow, fixed asset investment is still growing at a healthy clip of nearly 18% YoY, making the necessary rebalancing extremely difficult as is. In order for China to rebalance its economy to something more sustainable and in line with global norms for a country in its stage of development, fixed asset investment as a percent of GDP must fall from around 50% currently to something closer to 30-35%. To accomplish this fixed asset investment, and overall GDP, must slow substantially further. And this is why juicing fixed asset investment to boost growth in the short-term is counterproductive to China’s long-term goals, and it seems like policymakers realize this.