Economy

China Becomes First Major Economy to Start Withdrawing Pandemic Stimulus Efforts – The Wall Street Journal

Published

4 years ago

March 14, 2021

HONG KONG—As the first major economy to beat back Covid-19, China is now taking the global lead in moving to unwind its pandemic-driven economic stimulus efforts.

Unlike the U.S. and Europe, which are still flooding their economies with liquidity and spending, China has started reining in credit in some corners.

The shift puts China at the vanguard in confronting a challenge other economies will face in coming years as their economies recover: how to withdraw stimulus without snuffing out growth or causing broader market instability.

China’s policy makers have expressed concern about an overheating housing market and want to prevent bigger imbalances. They are also eager to resume a multiyear campaign to curb debt that started building during the previous global recession.

If mishandled, China’s tightening could impair its recovery, which would crimp the global economy. China’s plans could also create wider problems if they trigger more debt defaults or a bigger correction in China’s stock markets, at a time when global investors are already jittery.

For those reasons, economists say, China is likely to move slowly, gradually tightening credit in certain parts of the economy while avoiding more blunt-force moves like raising interest rates.

“It is very clear that China’s policy makers intend to unwind stimulus and tighten policies,” said

Ding Shuang,
chief economist for Greater China at
Standard Chartered
Bank, “but they’ve been treading ahead carefully without making a sudden U-turn.”

China signaled its intentions during annual parliamentary meetings held earlier this month. It set its target for 2021 gross domestic product growth at “above 6%,” a relatively low rate given the economy’s momentum and a sign that Beijing wants flexibility to withdraw stimulus in the coming months, economists said. The International Monetary Fund projects China’s economy will expand by around 8% this year.

China lowered its fiscal deficit target—the gap between government spending and revenue—to 3.2% of GDP this year, from 3.6% in 2020. A smaller deficit suggests a more restrictive fiscal policy. The government also cut the quota for local government special bonds, a type of off-budget financing to fund local investments like infrastructure, to approximately $560 billion, down from $576 billion last year.

Beijing didn’t announce further issuance of special central government bonds this year, after selling approximately $154 billion of such bonds in 2020.

“As the economy resumes growth, we will make proper adjustments in policy but in a moderate way,” China’s premier,

Li Keqiang,
said at a news conference March 11. “Some temporary policies will be phased out, but we will introduce new structural policies like tax and fee cuts to offset the impact.”

Those moves followed earlier steps and were interpreted by investors as signaling tighter credit. In January, the central bank mopped up more liquidity than expected through daily open-market operations, a tool used to control the money supply available to commercial banks. That briefly sent a key short-term money rate to its highest level in five years, making it costlier for banks to borrow funds.

To tame rising property prices, China’s financial regulators recently imposed new rules making it more difficult for property developers, who are typically highly leveraged, to obtain new bank loans.

Broad credit growth picked up some in February, after declining for four consecutive months. Still, analysts expect lending will slow again given Beijing’s recent signals.

In contrast, last week the U.S. enacted a fresh $1.9 trillion economic aid package and the European Central Bank said it would boost its purchases of eurozone debt.

The different approaches reflect how Beijing views the pandemic as a temporary disruption, while Western policy makers are still trying to revive their economies and prevent long-term damage from the pandemic’s effects.

Beijing’s emergency measures last year included cutting taxes to help small businesses and ordering banks to extend more loans. Still, China’s fiscal measures amounted to far less as a share of GDP than those of the U.S. and many developed economies.

At the end of 2020, China’s total fiscal spending on pandemic stimulus was about 6% of its GDP, versus 19% for the U.S., according to IMF calculations.

China’s economy had recovered its pre-pandemic momentum in the last quarter of 2020, largely because of its success in containing Covid-19 and strong exports.

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Now its leaders worry more about controlling debt and other long-term economic issues, analysts say. Last year China’s overall leverage ratio, which measures the ratio of total debt to GDP, rose 24%—the fastest pace since 2009—to 270%, according to official data.

Many economists expect China’s central bank, the People’s Bank of China, to tame the pace of new credit issuance rather than raise key interest rates, which would risk attracting speculative money inflows that can fuel dangerous asset bubbles. The central bank has pledged to keep its monetary policy prudent and flexible, while avoiding flood-like stimulus.

“The market widely interprets PBOC’s tone as more hawkish” than before, said Mr. Ding of Standard Chartered. That could lead to risks, he said, if inadequate communication leads to market overreactions.

Another possible land mine is the potential for tighter credit to cause more defaults among state-owned enterprises. Many are heavily indebted, and local governments, which have their own debt problems, are increasingly wary of bailing them out.

“As China exits supportive measures, some of the problems that got glossed over last year may show up this year,” said Wang Tao, China economist at UBS. “We expect to see more corporate bond defaults and a higher bad loan ratio.”

Write to Stella Yifan Xie at stella.xie@wsj.com

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Economy

Canada’s unemployment rate holds steady at 6.5% in October, economy adds 15,000 jobs

Published

2 days ago

November 8, 2024

Anne Joseph

OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.

Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.

Business, building and support services saw the largest gain in employment.

Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.

Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.

Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.

Friday’s report also shed some light on the financial health of households.

According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.

That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.

People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.

That compares with just under a quarter of those living in an owned home by a household member.

Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.

That compares with about three in 10 more established immigrants and one in four of people born in Canada.

This report by The Canadian Press was first published Nov. 8, 2024.

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Economy

Health-care spending expected to outpace economy and reach $372 billion in 2024: CIHI

Published

3 days ago

November 6, 2024

Anne Joseph

The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.

The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.

CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.

This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.

While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.

Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.

The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.

This report by The Canadian Press was first published Nov. 7, 2024.

Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.

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Economy

Trump’s victory sparks concerns over ripple effect on Canadian economy

Published

4 days ago

November 6, 2024

Anne Joseph

As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.

Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.

A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.

More than 77 per cent of Canadian exports go to the U.S.

Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.

“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.

“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”

American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.

It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.

“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.

“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”

A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.

Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.

“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.

Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.

With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”

“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.

“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”

This report by The Canadian Press was first published Nov. 6, 2024.

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