China's Stimulus Won't Bail Out the World

The drag from lockdowns will largely cancel any boost from new spending

- Enda Curran and Tom Hancock

Responding to the 2008 financial crisis, China unleashed a fiscal package of 4 trillion yuan ($586 billion at the time), plus an unprecedented surge in bank lending that spurred demand for commodities and consumer goods. All that, in the process, lifted trading partners such as Australia and Brazil and major global companies. It repeated the exercise on a smaller scale in 2016, using fiscal spending to revive the property market.

This time it’s different: China’s planned stimulus is unlikely to do much to reverse the global economic slowdown. With China’s economy more than twice as large today, accounting for more than 18% of global output, policymakers are reluctant to unleash something on the scale of the 2008 blitz, which left a legacy of debt and record corporate defaults. Beijing has promised a package of extra government spending and tax cuts worth about 4.5 trillion yuan. Even though it’s also quietly allowing local governments to increase off-balance-sheet debt to fund infrastructure, that’s less than half the size of the 2008 support relative to gross domestic product.

Also unlike in 2008, the government is contending with virus outbreaks and appears determined not to use the property sector to bolster the economy. President Xi Jinping’s strict “Covidzero” approach to curbing infections means that the potential for disruptions to growth this year is significant and that the country will be a drag on the global economy.