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Will China undertake a new fiscal stimulus?

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David Brancaccio: World financial markets have been see-sawing in recent days amid talk China might — or might not — give an extra stimulus to its economy. It’s an “as goes China, so goes the world economy” proposition, but today the official Xinhua news agency carried a story dampening speculation about stimulus.

Joining me now is Qian Liu, deputy director of the Economist Intelligence Unit in Beijing. Good morning.

Qian Liu: Good morning.

Brancaccio: So China, the world’s second largest economy, growth was running near 9 percent last year, what’s the argument that it needs a little more stimulus?

Liu: The simple answer is that the Chinese economy is not doing as good and the market and the government are anticipating it to be. Yes, 9 percent or 8 percent as we saw 8.1 in the first quarter is still very high in the global standard, but somehow the 8 percent magic number is really an economic and emotional magic number to the government. Anything below that would mean bad employment figures which can result to potential social instability. So they can’t afford to see that happening.

Brancaccio: So there’s an argument for some stimulus. How might a stimulus work if it did come?

Liu: Well for one thing, we are not certain that it is going to be a stimulus package. Its more about the policy that’s going to support the economic growth. If anything, one possible area would be infrastructure because it’s investment driven, it’s easy for the government to handle, and it’s not the property market that is too sensitive to both the government and the citizens. The other area might be related to consumption, especially for the farmers, as we saw in 2008 and 2009 where government will give subsidies to those who were purchasing household appliances.

Brancaccio: Dr. Qian Liu at the Economist Intelligence Unit in Beijing, thank you very much.

Liu: Thank you, my pleasure.

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