Quick Take | China has no idea how to play Trump, and is doing what it always does when it smells trouble
In the past, Beijing has reacted to economic challenges by opening its credit spigot and letting the money flow, and that’s what it has started doing this time too even though the mess from the last crisis is yet to be cleared
It has already used targeted reserve requirement cuts for select banks. This week the People’s Bank of China (PBOC) pushed US$74 billion into the system to get funds to the small-business sector. The State Council also announced US$200 billion of infrastructure spending to boost what were weak infrastructure numbers, while the currency fell to 6.8 to the dollar to take the edge off tariffs. It’s a playbook we have seen before.
Following the global shock in 2008 due to the financial crisis, Beijing panicked when a reported 20 million migrant workers had or were at risk of losing their jobs. After years of trying to bring financial discipline to the banks, they opened the credit spigot and let the money flow. That stimulus, hailed at the time as the saviour of global growth, is now one of the main causes of the debt dependency which Beijing still struggles to rein in.
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To some, Beijing’s rapid fiscal and monetary moves may seem like strength: it is proactive, decisive and has the financial capacity to act to avert the worst. But in reality, it is a sign of utter confusion. Trump has clearly thrown China off kilter.