China unlikely to introduce stimulus program in near future

By Kim Young-gyo
HONG KONG, Aug. 22 (Yonhap) -- China is not likely to introduce economic stimulus measures despite growing concerns that the global economy might slip back into a recession, an expert said Monday.
Fresh concerns over a global recession have been setting off alarm bells, after the first-ever U.S. credit rating downgrade and the persistent debt crisis in Europe gave the global financial markets a beating.
Vincent Chan, China strategist at Credit Suisse, said that the Chinese government is still in the process of estimating the chance and impact of a global economic slowdown.
"(China) is still far from having a stimulus package ready," he said.
"(Even) if a stimulus package really takes place, it will be very different from the one in 2008-2009, with a much smaller scale."
At the end of 2008, the Chinese government pumped 4 trillion yuan (US$590.2 billion) into the market to counter the worldwide financial crisis.
Beijing, which had maintained expansionary fiscal and loose monetary policies for about two years, started to roll back such measures in late 2010 as it faced record-high inflation resulting from excess liquidity and an overheated economy. The country's central bank has raised the benchmark interest rate for the third time so far this year.
Chan said concerns on inflation and inflation expectation are still very strong among Chinese policymaking circles, which has become a constraint on the relaxation of monetary policy.
"Stability will override most other concerns. Stability in the current context basically means inflation and property prices being kept under control, and no major unemployment problems arising from the economic slowdown," he said.
"More than one government economist told us that if there is no major risk of unemployment, the Chinese government could tolerate a lower economic growth rate -- even below 8 percent could be acceptable."
The expert added that after the aggressive investments in the last few years, there are fewer investment projects that are financially viable in the short to medium term.
Most of the infrastructure sectors being highlighted, such as social housing, irrigation and roads or bridges at county levels, are likely to be low-yield assets, he said.
ygkim@yna.co.kr