Compelling Discussion: Yellen and Gourinchas Argue China's Stimulus Measures Fall Short

U.S. Treasury Secretary Janet Yellen and International Monetary Fund's chief economist Pierre-Olivier Gourinchas stated on Tuesday that China's recent stimulus measures are unlikely to significantly increase domestic demand and will leave a notable source of trade friction unaddressed. In separate remarks, Yellen and Gourinchas noted that they have not observed any announcements from China's central bank and finance ministry that would boost demand sufficiently to absorb excess output and enhance growth.

Speaking at a press conference at the start of the International Monetary Fund and World Bank annual meetings in Washington, Yellen stressed the importance of measures aimed at increasing the share of consumer spending in China's GDP and addressing issues within the property sector.

Gourinchas, during a press conference on the IMF's latest projections, described China's fiscal stimulus efforts as lacking in detail, resulting in the IMF excluding them from China's growth outlook, which was downgraded by two-tenths of a percentage point to 4.8%.

He added that the monetary policy stimulus announced last month by the People's Bank of China to boost lending would do little to substantially increase growth.

While Yellen agreed on the need for China to boost consumer spending and reduce the GDP savings rate, she criticized China's approach to overcapacity, noting that "immense" subsidies, particularly in areas affected by recent U.S. tariff hikes like electric vehicles, batteries, solar panels, and semiconductors, pose a threat to manufacturing jobs in the United States.