Nervous markets,

oblique reference to rising trade tensions.

Since then, China has implemented a series of monetary and fiscal stimulus measures, including pumping liquidity into the banking system and jump-starting big infrastructure projects like subways. But the scale of these efforts has been more modest than previous rounds in 2008-09 and 2014-15.

“I don’t think they’re going to go for major stimulus. Policy makers know they’ve reached the boundaries of stimulus as being very helpful. So we’re stuck with the mild stimulus that we’ve seen,” says Yukon Huang at the Carnegie Endowment and former World Bank country director for China.

The government’s lighttouch approach to stimulus partly reflects the reduced policy flexibility today compared with 2008, when debt levels were lower and a simpler growth model based on investment in housing and infrastructure had more room to run.

The amount of new capital investment required to generate a given unit of GDP growth has more than doubled since 2007, according to Moody’s Analytics. In other words, investment stimulus produces little bang for Beijing’s buck, even as it adds to the debt levels.

But restrained stimulus has left markets underwhelmed. The blue-chip CSI 300 index fell 25% in 2018, including 15% since the July cabinet meeting.

As a result, the government appears to be stepping up support for growth. At the annual central economic work conference in late December, which sets the policy agenda for the coming year, leaders pledged further tax cuts and signaled monetary loosening. Global stocks rebounded yesterday after the PBoC cut banks’ required reserves by $117 billion in a fresh cash injection intended to boost lending.

“They [Beijing] will soon have no choice but to launch massive stimulus,” says Alicia García Herrero, chief Asia Pacific economist at Natixis in Hong Kong. “They do not want to give away their credibility because they said they wouldn’t do it, but there is no time to be cautious any more. Not having growth is ultimately the worst outcome of all.”