China may need a 600 billion yuan (HK$738 billion) stimulus package to shield the economy from any fallout caused by a possible Greek exit from the euro zone, according to China International Capital Corporation (CICC), a state-owned investment bank.
Peng Wensheng, CICC's chief economist, said in a research note yesterday that a package would be needed to sustain China's official target of 7.5 per cent for growth in its gross domestic product, if Greece left the euro. Further cuts in banks' reserve requirement ratios, and even a cut in official interest rates, would also be considered.
He estimated that China's economic growth rate could slow to 6.4 per cent if a Greek exit dragged down global economic growth by half as much as the 2008 global financial crisis did.
Bank of America-Merrill Lynch economist Lu Ting said that any government stimulus package would probably inject money into infrastructure, social housing and the consumption sectors.
He also expected that as China's GDP growth could slow to 6 per cent or less this year if Greece left the euro, local government-funding vehicles set up in 2008 would continue to borrow money from banks, and with fewer restrictions. But the central government might also issue bonds to raise money.
Stock markets worldwide have been in retreat on fears Greece might leave the euro zone. The timing of any announcement would also be a challenge, with Bloomberg saying Greece would only have a 46-hour window to execute such a move - between the close of trading in New York on Friday, and the Monday market opening in New Zealand.
Asian stock markets were all in the red yesterday. The Nikkei 225 index lost 1.98 per cent, or 172.69, to close at 8,556.6. It was the worst performing Asian market, along with Thailand, which also lost 1.98 per cent to close at 1,109.16.