China Puts Away the Economic Shotgun and Turns to a Stimulus Rifle


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An eternal optimist, Liu-Yue built two social enterprises to help make the world a better place. Liu-Yue co-founded Oxstones Investment Club a searchable content platform and business tools for knowledge sharing and financial education. also provides investors with direct access to U.S. commercial real estate opportunities and other alternative investments. In addition, Liu-Yue also co-founded Cute Brands a cause-oriented character brand management and brand licensing company that creates social awareness on global issues and societal challenges through character creations. Prior to his entrepreneurial endeavors, Liu-Yue worked as an Executive Associate at M&T Bank in the Structured Real Estate Finance Group where he worked with senior management on multiple bank-wide risk management projects. He also had a dual role as a commercial banker advising UHNWIs and family offices on investments, credit, and banking needs while focused on residential CRE, infrastructure development, and affordable housing projects. Prior to M&T, he held a number of positions in Latin American equities and bonds investment groups at SBC Warburg Dillon Read (Swiss Bank), OFFITBANK (the wealth management division of Wachovia Bank), and in small cap equities at Steinberg Priest Capital Management (family office). Liu-Yue has an MBA specializing in investment management and strategy from Georgetown University and a Bachelor of Science in Finance and Marketing from Stern School of Business at NYU. He also completed graduate studies in international management at the University of Oxford, Trinity College.

When the world was suffering from 2008′s financial panic, China implemented an unprecedented RMB 4 trillion fiscal injection over two years and RMB 17.6 trillion credit surge which kept China from suffering the kind of economic downturn that was felt in the US and Europe. However, this stimulus package also fueled a property bubble, stoked inflation and helped generate bad debts that credit agencies say still plague the country’s state-run banking system.

So in the face of 2012′s economic slowdown, China appears to be taking a much more limited approach to propping up its economy. According to experts, the country’s total stimulus this year may be less than one- third the size of the 5.4 trillion yuan fiscal and monetary firepower of 2008, which raises concerns over whether this year’s approach will fall short where the government had previously overshot its economic objectives.

Picking Their Stimulus Targets

Unlike in 2008, China’s approach to stimulating the economy through government-led or guided investment is more strategically focused, with particular attention being given to support alternative energy, and affordable housing rather than opening the credit doors to industries across the board.

According to a recent report from Australian and New Zealand Banking Group, of RMB 818 billion in projects recently approved, 55 percent were for clean energy or subsidies for fuel-efficient car production. The government has also accelerated approvals for wind farms, hydropower plants, airports and steel mills endorsed in its five-year plan through 2015.

Yes, Some Stimulus Will Go into Real Estate, but Not for Everyone

In addition to alternative energy and supporting more sustainable industry, China’s government has also fast-track RMB 66 billion in funding to build 2.3 million low-cost houses.

And as for the much discussed relaxation of restrictions on residential real estate, where there have been shifts approved by the central government, these (at least officially) have come in the areas of relaxed lending rules for banks and expanded loans for first-home buyers, which while supporting the housing industry, also have the goal of ensuring that homes are affordable enough to help stave off any potential unrest.

And at least according to some indicators, these changes are already having an impact. After banks lowered mortgage rates for first- home buyers, transactions in Beijing rose 30 percent in May from the previous month, to 23,174 units, the highest since the Chinese capital imposed property controls in February last year, according to a June 1st report from Centaline Property Agency.

Will 2012′s Stimulus Be Enough for China?

While the government is seeking to avoid re-stoking the inflation fires, a number of economic analysts are losing faith that China is doing enough to sustain its economy.

Already, both Credit Suisse Group AG (CSGN) and Deutsche Bank AG reduced forecasts for China’s growth this year as weakness in exports and in investment drag on the world’s second-biggest economy.

Credit Suisse cut its estimate to 7.7 percent from 8 percent, while Deutsche Bank lowered its forecast to 7.9 percent from 8.2 percent, according to advice that the firms forwarded to investors last week.

If these predictions come true then 2012 would be the weakest year for growth in China since 1999 and it would show a dramatic drop from the 9.2 percent expansion experienced last year.

However, at a press conference on March 14th this year, Premier Wen Jiabao already tried to manage public expectations for growth by proposing that a 7.5 percent rate of economic expansion should not be considered low, considering that China’s GDP has now reached RMB 47 trillion.

Backing up this preference for slower growth as the price to be paid for taming inflation, the state-run Xinhua News Agency reported on May 29th that China has no plan for stimulus on the scale of 2008 because that is “unsustainable.”

Of course, if government predictions are wrong, you will know it when unemployed workers start taking to the streets. (Or will it be bankrupt property developers at the front of those mobs)?

As of now, however, there are indications that the government’s moves are already buffering the economy against any potential hard landing.

New loans surged to 793.2 billion yuan in May, the highest for that month on record, pointing to a rebound in lending in late May as banks and borrowers responded to the government’s initiatives. Also, recent reports on real estate prices have already shown a slowdown in the rate of price cuts and rise in the number of housing transactions

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