Poor economy shows China needs to own recovery

FOR as much as China’s re-opening may give the world economy a boost, President Xi Jinping would be mistaken to anticipate a two-way street. With a major slowdown or recession widely forecast for the US and Europe, Beijing can’t count on growth being buttressed much from abroad. Domestic initiatives will have to take priority.

How far are authorities willing to go? After a flurry of measures introduced and ideas floated for lifting constraints on Chinese business, the central bank injected a note of caution late last week. Stimulus is fine, but let’s be attentive to the risks of doing too much and generating a burst of inflation. That was the gist of comments Friday (Jan 13) by a top executive at the People’s Bank of China. The PBOC then passed up an opportunity Monday (Jan 16) to cut a key interest rate and added less cash than expected to the banking system.

A reduction would have been a surprise; most economists predicted the one-year rate would be held at 2.75 per cent. But that’s not an argument against taking the step. Chinese economic and social policy has been full of surprises the past few months. Despite fears that the harsh Covid-Zero stance would be maintained for at least the start of this year, China rapidly has dismantled pandemic restrictions. The government has reached a form of detente with technology companies, is considering relaxing curbs on property developers, and is mulling a loosening of fiscal policy. A rate cut Monday would have underlined the intent of removing constraints on the faltering expansion.