CHINA: FROM RESTRICTION TO STIMULUS

FOR CHINA, STIMULUS SEEMS TO BE THE HARDEST WORD

Don Durfee and Nick Edwards

Reuters, December 10, 2011

BEIJING (Reuters) - The managers of Chongqing Changan Automobile could be forgiven for wishing it was 2008 again.

China's No. 4 car maker was one of the obscure winners of Beijing's decision to release a flood of cash into its economy during the darkest moment of the global financial crisis.

But when the stimulus stopped, particularly incentives for car buyers earlier this year, so did the company's runaway growth.

After car sales growth of 46 percent in 2009 and 32 percent in 2010, the maker of the squat Ben Ben mini car and Changan Star van saw a modest 3 percent rise in the first 10 months of 2011. It also watched its share price plunge.

If Changan is hoping for a repeat of the 4 trillion yuan that China spent on roads and rails and other projects, it may be in for a long wait.

"China's leaders understand that safeguarding growth is very important, but in 2008 the government had more policy tools they could use," said Liang Youcai, a senior economist at the State Information Centre, a top government think-tank in Beijing.

"They won't unveil a large-scale economic stimulus anywhere close to the 4 trillion yuan programme."

Beijing has reasons to steer clear of big stimulus, including the need to avoid firing up inflation, which remains relatively high.

A local government debt crisis is an awkward side effect of the government incentives in 2008, making stimulus a loaded word.

And a looming 2012 political transition that will see top leaders step down, leaves policymakers aiming for stability, not a big fiscal injection of cash into the economy.

Furthermore, China may have the fiscal leeway to do enough for the economy anyway, with the "fine tuning" that Premier Wen Jiabao has said will keep its economic engine running smoothly, analysts say.

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