China To Unleash One Trillion stimulus

China To Unleash One Trillion stimulus

Weak economic data from the world’s second largest economy continues to stoke fears that as China slows down, it will exacerbate the cooling of the global economy. But it shouldn’t be all gloom and doom, according to Nomura’s economic research team, which suggests Chinese output will rebound sharply in the fourth quarter on the back of a stimulus plan worth about one trillion RMB ($158 billion) and monetary easing by the People’s Bank of China.

While GDP is expected to grow only 7.7% in the third quarter, Nomura’s research team forecasts a sharp rebound in the fourth quarter, with output expanding 8.8%. Infrastructure investment will play a prominent role in this recovery. Total planned investment for new projects started in August rose 33% year-over-year in August, up from 25% in the previous month; it’s forecasted to grow more than 40% this year.

A big chunk of that growth comes from plans announced by China’s National Development and Reform Commission, which last week unveiled a slew of subway and highway projects. Power stations, wind farms, airports, water supply, sewage treatment, and waste incineration power plant projects have also been announced, worth together around one trillion RMB, Nomura’s estimates show, or 2.1% of GDP. These projects take an average of four years to complete, and are normally started with a three to four month lag, they explained.

Another key point is the coming leadership transition. Much like during an election year in the U.S., the Communist Party’s big once-in-a-decade shuffling of its upper ranks will make policymakers “much less tolerant of any further slowdown.” In a rare speech at an international conference last week, President Hu Jintao “acknowled[ed] the downside risks to the economy and emphasiz[ed] the importance of promoting infrastructure investment,” giving further creed to the notion that solid stimulus will be unleashed.



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