Why no bazooka stimulus in China?
China is continuing to stimulate the economy. But it is using more creative ways to fund growth. Two of the major policy efforts are a new infrastructure program called the "Six Networks", and a targeted increase in bank lending. While it is too early to call if these programs are a sign of panic, the shift away from a single-minded focus on technology investment suggests there is concern about the state of the economy. Recent conversations with Chinese citizens suggests that the downturn in the economy is worrying the leadership.
China intends to invest 7 trillion yuan in the Six Networks, which includes a variety of infrastructure and technology links. What is interesting is how they are not all high technology projects in line with Xi Jinping’s priorities. Instead, some are in logistics, areas that support China’s export drive, and its relatively high employment (at least compared with sectors such as AI). They also function as a form of infrastructure-driven investment, in line with China’s traditional construction-as-stimulus mindset.
The Six Networks is a policy that makes minor changes in the direction of government support, including areas such as water and logistics. However, the total amount of funding hasn’t changed. Meanwhile, bank loans continue to rise as a percentage of GDP, with continued prioritization of technology sectors. Clearly, the central government remains unwilling to provide the bazooka stimulus that so many economists (domestic and foreign) are hoping for. In this report, we also look at several potential reasons for this.
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