As household debt mounted, the property market turned downwards last year and auto sales fell for the first time in at least two decades. Property and car sales account for one-fifth of China’s gross domestic product. Although China’s foreign trade rose by 10 per cent last year, its growth rate will slip this year as the global economy softens and the United States’ trade war with China begins to bite. As exports also account for one-fifth of GDP, any slowdown there would hurt the economy. Obviously, with all this negative news, investment will also cool.
To stimulate the economy, Beijing is cutting banks’ reserve requirement ratios and launching infrastructure initiatives. Neither is likely to revive growth. Chinese debt, unofficially 300 per cent of GDP, is too high for any debt-led growth policy to be effective. Currently, infrastructure spending is around one-fifth of GDP. It is hard to see how a few projects can move the needle. It appears the government’s goal is stability, especially in the financial system and the labour market, not growth. As the property market tips over, loan repayments become more sporadic. The goal of the monetary policy is probably to keep lending institutions liquid. This policy could be undermined only by massive capital flight. But as long as the Great Wall of capital control is solid, China will remain stable for the foreseeable future.
Money, to misquote Dr. Ian Malcolm, finds a way.