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China reports 8.1% growth but still wants another stimulus plan

Hong Kong

China has been making a steady economic resurgence since the recession in 2008, but not since then has there been this level of concern over fiscal growth. Chinese officials in Beijing are now contemplating whether they’re in need of another stimulus to spur the economy. This of course would only lead to a temporary boost in spending but would further swell inflation. CNN reports:

“With dark clouds gathering over the Chinese economy, the government has started to talk about the importance of supporting growth and speculation is mounting about what actions it will take.

Some analysts predict that it will dust off its 2008 playbook and announce a large-scale stimulus package. But others say this is unlikely because Beijing is both less perturbed by the current slowdown and more wary of the dangers of another spending spree.”

“Concerns about fallout from a shaky domestic property market and Europe’s debt woes are hardly new in China. These concerns have been around for nearly a year, during which time officials have been very cautious in loosening monetary policy and increasing fiscal spending.

Beijing has cut the portion of deposits that banks must hold in reserve twice since November, injecting more cash into the economy. It also has stepped up efforts to construct 36m units of affordable housing by 2015, a big investment programme. On the currency front, it has let the renminbi fall a touch against the dollar this year to aid struggling exporters.

At the same time, the government has started to implement longer-term tax and financial sector reforms that are part of its strategy for shifting the economy away from a reliance on investment towards consumption.”

“Until recently, Beijing was content to continue down this gradualist path. The economy has clearly slowed, but at 8.1 per cent annual growth in the first quarter, it has hardly collapsed. Importantly, unlike 2008 when 20m blue-collar workers lost their jobs virtually overnight, there are few signs of labour market distress.”

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