China Defends Growth Targets, but Analysts Aren’t So Sure

CNBC has a very good article on China’s easing intervention. The key takeaway from the article is this:

Growth in China’s economy has slowed for six straight quarters, and authorities have battled the slowdown with two interest-rate cuts and three cuts to banks’ reserve requirement ratios since November last year. But the effects of the measures have yet to show up in the numbers—this week’s data on trade and industrial output for August turned out surprisingly weak.

The latest stimulus from regulators, in the form of an infrastructure program worth $157 billion announced last week, may have prompted a rally in Chinese stocks but Straszheim argues that the measure is too little, too late.

“This $150 billion, about a trillion yuan, that they announced on infrastructure is spread over four years. That’s only 250 billion (yuan) a year. That’s a half of 1 percent of GDP,” he said.

“The stimulus package they did in 08-09, was 5 percent of GDP, two years running. They’ve got to do more. I think they will do more. But, it cannot offset the weakness that is being thrust upon China because of weakness in its export markets overseas.”

How much more is needed? Looking at Shanghai Composite Index, the recent high was at 2007 @5,900 levels. The stimulus package of 08-09 could only bring levels up to 3,400, form a 2008 low of 1720 levels. While S&P500 and DAX have mostly recovered from the great decline in 2008, the Composite Index is still languishing between 2,000 to 2,500 in 2012. Looking at the trend, will a 250 billion yuan yearly warchest be enough to bring Shanghai Composite Index above 5,000 again?

Via – CNBC


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