China Can’t Solve its Economic Woes through Stimulus

In 2015, the Chinese economy saw its slowest annual growth in 25 years. The New Year hasn’t been very promising. In January, exports fell by 11.2 percent while imports fell by 18.8 percent compared to last year.

China is also seeing rampant factory closures, mergers and relocations.

The country continues to suffer from massive income inequality. Thousands have lost their jobs and those who have managed to keep them are seeing pay cuts. Meanwhile, the amount of billionaires in China is exceeding that of the United States in some estimates.

China is seeing a spike in labor unrest. Strikes increased from eight in January 2011 to 503 in a January 2016.

Needless to say, the government is not sure where the economy is heading.

For next year, Premier Li Keqiang projects a growth of between 6.5 percent and 7 percent. This is the first time a Chinese leader has aimed for a range rather than a clear figure. Nonetheless, several analysts say the range is far too optimistic.

According to the News Minute, this high target highlights Chinese leaders’ reliance in Keynesian pump priming.

“They are making big fiscal and monetary decisions to keep the economy growing,” reads one editorial. The deficit will increase from 2.3% to 3% of gross domestic product (GDP) that is now over $11 trillion. This is a huge $330 billion stimulus to keep the economy going. “

Recently, China pumped large sums of money into the market after stocks dived. The same tactic was used when the government bailed out real estate companies as the U.S. had done with banks.

“In both countries, robber barons took risks and walked away with big profits, while taxpayers provided these barons insurance and absorbed private losses,” reads the editorial. “At its essence, China is suffering from a massive transfer of wealth from the many to the few because of corruption and crony capitalism.”

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Copyright 2016 China Cheat Sheets

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