about 1 month ago • 2 mins
What’s going on here?
China’s government announced a package designed to excite its economy on Wednesday, but it’s little – very little indeed.
What does this mean?
The Chinese president recently paid a rare visit to the country’s central bank – the knee-shaking equivalent of your boss scheduling an impromptu one-on-one meeting without warning. That’s a sign that the country’s leader is far from content with the state of the economy, and it may well have spurred on the government’s decision to increase its spending. Now that decision’s been made, China’s borrowing – the gap between what the country makes in taxes and spends – could tick above the 3% limit that the thrifty government has historically hovered around.
Why should I care?
For markets: Slow and steady might win the race.
That fresh stimulus spending doesn’t even match 1% of the Chinese economy. But China’s a dab hand at making the most of small steps: rather than bringing out a big bazooka, the country’s stuck to a little-and-often approach to tackle its economic slowdown. And with the country picking up more than expected last quarter, this tortoise may be inching ahead in the marathon – even if it fell short on the sprint.
The bigger picture: China needs to watch its credit score.
China’s careful approach to budgeting is clear in its books: the country's debt is worth around 80% of its economy. That’s not insignificant – but compared to Japan’s 260% and the US’s 120%, it’s pretty paltry. And in Europe, big spenders Italy, Greece, and Portugal have racked up debt piles worth between 120% and 170% of their economies, while some Scandinavian and Eastern European countries have kept theirs below 40%. That matters: a country’s debt levels can lead to higher interest rates, which can lead to higher debt, and so the pattern repeats.
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