Comparing Apples to Fish: Stimulus Policies in 2015 and 2019

Many analyses have compared counter-cyclical policy during the 2015-2016 economic cycle to stimulus measures today. We argue the current round of stimulus is qualitatively different, and should not simply be measured quantitatively against a baseline from the previous cycle. Key points include:

Beijing is trying to avoid the unintended consequences of the 2015-2016 stimulus, which was highly reactive to market turmoil. Current policy support is stronger than the last cycle in some areas, such as fiscal policy, but more targeted, to limit debt growth.

Policies toward the property sector and shadow banking remain far more restrictive than in 2016, and will not change considerably. Shadow banking activity was a key driver of the last rebound, but will remain regulated in 2019. Policy toward the property sector is still focused on combating speculation, even though localities are easing restrictions.

Only a shallow, modest rebound in overall activity growth should be expected. While industrial output and credit growth are currently stabilizing, provincial credit conditions are highly uneven, the property sector remains a key headwind this year, and the financial system cannot resume its previous pace of expansion.

Posted February 12, 2019
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