China’s responses to the slowdown, from its $586 billion stimulus package in November to $700 billion of bank lending from January to March, have prompted the world’s envy. On Saturday, Chinese Premier Wen Jiabao noted that this stimulus has “resolved some prominent problems in the economy”. But colour us sceptical on this front.
China usually forces its banks to lend more during slowdowns, which only means that banks are busy cleaning up non-performing assets once the bust turns into a boom. This time around, the story may end the same way.
The precise impact of the stimulus is unclear: It might only be adding to unsold glut. Gross domestic product growth has slowed from 6.8% at the end of 2008 to 6.1% in the first quarter of this year.
What’s more, the stimulus reinforces the Chinese economy’s original sin: an export-oriented model. Exporters and manufacturers have gained, but consumers haven’t.
This is one great wall China still hasn’t managed to breach.