China Stimulus to Offset Negative Effect of Trade War with US

China will take steps to spur growth amid a trade war with the United States, but there is limited room for aggressive stimulus in an economy already laden with massive debts and a property market prone to credit-driven spikes, policy insiders said.

China’s deepening economic slowdown has fanned market expectations of a big spending binge, especially if the bruising tariff war with Washington escalates, intensifying pressure on Chinese jobs threatening social stability.

Such a move, plans for which have repeatedly been denied by China’s top leaders, would come at a price, however – similar moves in the past have quickly juiced growth rates but also buried the world’s No.2 economy under a mountain of debt.

“The room for a strong stimulus is not big, and there are very big risks, because that will rely on a flood of cash and increased leverage in the economy,” said a policy insider, declining to be named due to the sensitivity of the matter.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza