Investors counting on China to repeat its huge 2008-09 stimulus to backstop global economic growth are failing to recognize Beijing's limited scope to deliver another major spending surge.
The 4 trillion yuan ($628 billion) stimulus package launched to counter the post-Lehman global crisis won worldwide applause but left a stellar bill - a 10.7 trillion yuan ($1.7 trillion) mountain of local government debt, the risk of sour loans as growth slows and a super-heated property market.
Add in a naturally declining growth rate and China's ability and willingness to deliver a forceful response to mitigate the global impact from Europe's deepening debt crisis are seriously curtailed, analysts say.
"Not only is the policy room smaller, but the incentives for the government to produce a large stimulus package are smaller," Qinwei Wang, China economist at Capital Economics in London, told Reuters.
The National Development and Reform Commission (NDRC), China's top economic planning agency, is fast tracking investment projects to support economic growth, expected by economists to slide this year to its weakest pace since 1999.
Premier Wen Jiabao's had pledged to make the task of supporting growth more prominent, although the latest spending push is more cautious and selective than the 2008-09 stimulus, focusing on infrastructure, steel and green energy projects.
"The size of the stimulus this time round will be much smaller judging by both the needs and the constraints," Lu Feng, an economist at Peking University, said.
Few analysts can give an exact tally on the "mini" stimulus, which also includes tax cuts and subsidies for consumers.
Beijing has pledged to stabilise growth with policy fine-tuning. So far that has also included three cuts in banks' reserve ratios since November. There is little sign that Beijing will loosen its grip soon on the property sector, as it did in 2008.
Back in 2008-09, Beijing sought to stimulate growth in what it described as a "fast and heavy-handed" way. The central bank shifted policy gears to complement the pump-priming, as the economy sank into deflation.
In the dark days of the financial crisis, Beijing won international praise for turning the economy around and bolstering global growth.
But the unfettered spending fuelled economic distortions, ranging from over-investment to a come-back of state-owned monopolies.
The new investment push has already drawn fire from some Chinese academics, who argue that the short-term gain in economic growth could further worsen the economy's structure.
Read more at Reuters...