China urgently needs a stimulus of shock-and-awe proportions, backed by a deep cleansing of its broken banks along the lines of America’s “Tarp” (Troubled Asset Relief Program) rescue in 2008. The latest package announced falls far short.

The drumbeat for radical action is by now deafening. It dominated the recent China Macroeconomy Forum in Hong Kong, where a chorus of influential voices called for a fiscal blast of up to $US1.4 trillion ($2 trillion) to pull the country out of debt deflation and cosmic gloom.

Xi Jinping needs to take more drastic measures to rejuvenate China’s economy.Credit: Bloomberg

Liu Shijin, a former rate-setter at the People’s Bank of China (PBOC), said the government should issue special bonds worth 8 per cent of GDP to boost social spending, pensions and health care. And to convert the galactic glut of unsold flats into homes for the 180 million-strong army of migrant workers caught in the no-man’s land of the semi-feudal Hukou system.

Mao Zhenhua, co-director of the Renmin Institute of Economic Research, wants a similar package of $US1.4 trillion – or 10 trillion yuan ($2.1 trillion) – proposing direct cash transfers to citizens akin to COVID cheques in the West.

The authorities have been dribbling out stimulus for months, but it has been too half-hearted to arrest the slide into a Keynesian liquidity trap. Disappointing data over recent weeks have finally caused the dam to break. The PBOC cut the reserve requirement ratio by 50 points last Tuesday. There were targeted measures to prop up the crumbling housing market.

Raymond Yeung, China strategist at Australia’s ANZ bank, said the measures will inject a trillion yuan into the banking system but does not add up to a genuine bazooka. “We question whether today’s package can lift China from the deflationary spiral. Massive easing and a complete change in mindset is required,” he said.

“We won’t rush to upgrade our growth forecasts just yet,” said Capital Economics. “The big picture is that monetary policy has lost much........

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