Stopping at nothing in tough economic times

The mainland economy has been experiencing a worse-than-expected slowdown, and the government's inaction, say some economists, is raising the odds of missing its growth target.

August data released earlier this month showed exports were hit hard by the European debt crisis and investments have yet to pick up despite Beijing's quickened approval of construction projects.

The downturn in the world's second-biggest economy has surprised many optimists who had become used to the astonishing growth of the past decade and also to aggressive official measures in turbulent times, such as the 4 trillion yuan (HK$4.89 trillion) stimulus package in 2008.

Many predicted the worst was over after the economy expanded at 7.6 per cent in the second quarter. But, until now, there has been little sign of recovery, something reflected by several investment banks revising down their gross domestic product projections for the second or third time this year to below 8 per cent.

Expectations had been high in recent months that the central bank would try to stimulate the economy by cutting interest rates or the ratio banks must set aside as reserves. But there has been no action on the policy front, an absence widely attributed to the once-in-a-decade leadership transition to be unveiled at the Communist Party Congress in autumn. Amid this, economists caution that the absence of stimulatory measures is raising the risk of a hard landing.

"It has not been easy to forecast the policy outlook in this year of the leadership transition," economists at Barclays Capital said. "Further policy inaction or delay means further downside risks to growth."

Meanwhile, speculation continues on who will sit on the Politburo or its Standing Committee to become China's ultimate decision-makers. The congress's exact start date has not been announced, suggesting continuing horse-trading for positions.