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Big Stimulus From China? Not Until Growth Drops Below 7%

China's economy, forecast to grow this year at 7.5 percent — the slowest annual pace since 1999 — may need more aggressive stimulus to prevent a steeper slide, but the state has so far resisted calls to step in in a big way.

gross domestic product

Although expansion has slackened, China's rate of growth is still close to the the official target of 7.5 percent for the year, they say.

"They don't seem to be rushing to pump growth up again, " Paul Sheard, chief global economist of Standard & Poor's Ratings Services, told CNBC Asia's "Squawk Box" on Thursday. "I think they're somewhat comfortable in the 7 to 8 percent zone. But, were the Chinese economy to show signs of dipping below this level, then I do think you would see the policymakers galvanized into action."

So far, aggressive monetary easing moves from the People's Bank of China involved the reduction of the banks' required reserve ratios by 150 basis points in three separate moves that started in November last year and ended in May, and two interest rate cuts in June and July. (Read More: Here's Why China's Interest Rate Cut Is a Really Big Deal .)

Since then, authorities have opted instead to introduce a drip feed of cash injections and fiscal measures to support the economy. Just this week, the People's Central Bank of China pumped 265 billion yuan ($42.2 billion) into financial markets, its second-largest one-day injection ever, to address a liquidity crunch. The move came two weeks after a record 290 billion yuan was given on Sept. 25, just before a week-long Golden Week holiday, when extra cash is typically taken out of the system for shopping and vacations.

On the fiscal front, measures involved providing tax breaks and subsidies to small firms, and the approval of infrastructure projects — including the greenlight from the planning agency National Development and Reform Commission last month of more than $150 billion worth of infrastructure projects across the nation.

There are signs that these policies may be starting to work, analysts say, especially on the domestic front. On Wednesday, the Ministry of Railway said investment in the sector grew by 92.7 percent year-on-year and 52.7 percent month-on-month in September. Housing agent Lianjia Properties said land sales in 10 large cities in China rose by 70 percent in volume terms and 124 percent in value terms in the third quarter from the second quarter.

The improving economic picture will likely keep China's growth on track, and reduce the need for further aggressive easing. (Read more: No Big Stimulus for China Even If Slowdown Worsens.)

"I think GDP will be 7.3 percent in Q3 and rebound from Q4, so things are in line with government targets and there is no need for any major stimulus, " Dariusz Kowalczyk, Credit Agricole's senior economist & strategist of Asia ex. Japan. "A below-7 percent GDP growth would most likely result in larger steps, but I don't expect the data to be that bad."

Analysts polled by Reuters expect the economy to grow 7.4 percent in the third quarter and 7.7 percent for the full year, the weakest since 1999, when the economy expanded 7.6 percent. China's economy expanded at 7.6 percent in the second quarter, its weakest quarterly growth in more than three years, as exports slowed and domestic demand struggled to take up the slack.

While the headline GDP figure is a consideration, jobs may be a bigger determinant of policy than economic data, Ding Shuang, Citi's senior China economist said.

"I personally think that unless the jobless rate gets a lot worse, and that will happen when the economy expands at less than 7 percent, the government will want to keep monitoring what happens, " Ding said. "I don't think anything major will happen on the stimulus front."

So far, the employment market appears to be holding up relatively better than in 2008, with the official jobs sub-index of the manufacturing Purchasing Managers' Index (PMI) showing only a slight contraction, Ding said. The September official reading for the employment sub-index showed that a reading of 48.9, down from 49.1 in August, compared to the end of 2008, when the reading sank to 43.

He expects the economy to expand 7.6 percent in the third quarter, similar to the growth posted in the second quarter, and 7.9 percent for the full year.

By CNBC's Jean Chua.