Feb 11, 2020 - Economy & Business

Push back against China's latest stimulus measures

Clients withdraw money from a Hang Seng Bank ATM

Photo: Chukrut Budrul/SOPA Images/LightRocket via Getty Images

Worries are beginning to grow about China's stimulus efforts as the government has pushed new measures designed to offset the impact of the coronavirus.

The latest: Chinese regulators ordered banks to lower interest rates and allow late repayment of loans to help small and midsize companies, but there are worries the program may be ill-advised.

  • "[T]he measures are not working as intended, bankers and analysts say, as the move could heighten financial risk in the banking sector and add to small business debt," Caixin reported, citing unnamed sources.
  • "Under the latest directives, banks heeding Beijing's call to support small and midsize companies could make problematic loans to companies that might not meet standards under normal circumstances."

Of note: China’s fiscal revenues rose just 3.8% in 2019, the slowest growth pace since 1987, largely as a result of wide-ranging tax cuts in response to the country's economic slowdown. That followed 6.2% growth the year prior, according to South China Morning Post.

Why it matters: China has been working to reduce its debt for years as part of a “structural deleveraging” campaign, but had to reverse course as the trade war and now the coronavirus outbreak are pushing the government to increase spending.

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