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PBOC Looks to Boost Growth with Additional Stimulus, Risks Loom

by on July 7, 2014 6:37 pm GMT
 

The People’s Bank of China (PBOC) is looking to boost China’s sluggish economy through various easing methods. The Chinese central bank has already issued 100 billion yuan for relenting for industries like agriculture and small businesses, which are generally locked out of the lending market. Another 300 billion yuan has been issued for low-income housing, according from reports by China Business News.

Market participants, along with Chinese government officials, are worried that China will not be able to keep up their 7.5 percent growth target for 2014 without issuing more rounds of stimulus. However, stimulus is a double-edged sword. China is struggling with massive government debt, primarily at the local level, and more stimulus could pose greater risks of default.

There are growing concerns that the central bank will out-step its reach, too, by wading into the realm of fiscal policy. “If you want to support some sectors of the economy, fiscal policy is much more effective — you can simply increase government expenditure and give money to those sectors. The PBOC is trying to do something beyond its reach,” said Chen Long,economist on China with GaveKal Dragonomics. A potential increase in current stimulus will help boost growth over the short-term, but risks loom as central banks around the globe tried to replace fiscal policy with monetary experiments.