Here's the real score in China's 'policy paralysis'

Are policymakers really ignoring growth risks?

According to Barclays, the market has become increasingly frustrated about the government’s “policy paralysis” in the face of slowing growth. We summarize our key takeaways from conversations with Chinese policymakers and policy advisors.

Here's more from Barclays:

There are several theses explaining the apparent lack of more aggressive growth policy, including “policymakers ignoring growth risks”, “leaders being too busy with power transition” and “the government running out of money”.

The real cause, in our view, is the complications created by the combination of a likely early pickup in inflation and a likely delay in a growth recovery. Lack of clear direction from the top sometimes also leads to government agencies reducing the effectiveness of each other’s policies.

It does look increasingly likely that the expected growth recovery might be further delayed. Even the top leaders now recognize that additional stimulus policies are needed to stabilise growth.

The government will probably continue to approve more new investment projects, ease monetary policy via rate and RRR moves, and effectively loosen housing purchase restrictions.

Likely new measures might include (1) use of the adjustment fund of up to CNY3000bn for more fiscal spending, (2) an increase in export tax rebates, and (3) supporting consumption through cash subsidies, lower taxes and cheap credit.

Even with existing and additional measures, a growth recovery will likely be gradual and modest. Many government officials’ expectations for 2012 GDP growth are already shifting downward to around 7.5% from 8.0% previously.