by Chris Becker
In news over the weekend that is sure to make the China perma-bulls a bit nervous, Finance Minister Lou Jiwei confirmed their resolve at long term restructuring by reiterating that the country cannot rely upon continual government spending for infrastructure investment.
From Reuters, via Yahoo Finance:
China will not dramatically alter its economic policy because of any one economic indicator, Finance Minister Lou Jiwei said on Sunday, in remarks that came days after many economists lowered growth forecasts having seen the latest set of weak data.
“China will not make major policy adjustments due to a change in any one economic indicator,” he said.
China cannot rely on government spending to increase infrastructure investment, Lou added.
The economic stimulus measures adopted by China to confront the international financial crisis had boosted economic growth, but they also brought excess capacity, environmental pollution, and the growth of local government debt along with other problems, Lou said. As a result, China cannot completely rely on public financial resources to make large-scale investments in infrastructure.
Macroeconomic policy will continue to focus on comprehensive goals, especially maintaining employment growth and stability in the price of goods, Lou said.
This is good news for long term investors, as the Chinese government and monetary authorities place the behemoth economy on the right track, post-GFC.
But with the price of iron ore plumbing new depths and Australia’s terms of trade under enormous pressure, as China accepts its medicine for its hangover, the Australian China-forever complex continues to have its head in the ground. The reality is there will not be a new round of stimulus every time PMI/GDP/FAI prints “poorly”.