D. William Kohli, Michael V. Salm, and Paul D. Scanlon, CFA, Co-Heads of Fixed Income, March 16, 2015
Economic data from China have continued to suggest its economy is slowing, and markets have observed regular failures among property development companies. The authorities have announced more monetary easing, but it does not appear to be a particularly powerful tool.
What is of particular concern to us is a persistence of inefficient habits. In early January, it became clear that the Chinese government was falling back on its tried and trusted approach to stimulating growth through public-sector investment. The government approved a 7 trillion RMB ($1.1 trillion) plan to invest in 300 projects in 2015 and 2016. The plan is apparently heavily front-loaded, and the projects will be financed by the usual mix of local governments, state-owned enterprises, and bank loans.
Balance would be better
While this is not a 2008-scale program, it shows that the government has lost patience with its earlier approach of encouraging the economy to rebalance and has — once again — pivoted to pouring capital into projects with an uncertain return and leaving the real handling of the problems until later.