China: A new round of “mini” stimulus

by: Maritza Cabezas

On Wednesday 2 April during a State Council meeting, President Li mentioned that he would accelerate construction on railways in the central and western parts of the country and support low cost housing. This type of projects are intensive in labour and are supportive to employment. This “mini” stimulus seems like a repeat of last year’s support, small in scope but sufficient to shift market confidence. Indeed, last year investment in railways was complemented by tax breaks, but it was enough to put the economy in firmer footing. So far markets have responded with optimism to the actions announced by authorities. Indeed, this round of policy support is having positive effects on China linked assets. China’s authorities are aware that strong economic growth is needed to outgrow its high debt levels. We maintain our forecast of 7.5% growth in 2014.