Courtesy of Also Spracht Analyst
After China’s disastrous macroeconomic data in April, the People’s Bank of China has cut the reserve requirement ratio by 50 basis points. Unfortunately, with debt deflation and a worsening capital flow situation, cutting RRR is going to be totally useless in stimulating credit.
So here comes Wen Jiabao. He has recently been quoted as saying that stabilising economic growth is now becoming more important. According to Xinhua, Wen Jiabao has been travelling to various places and, while he thinks that economic growth is currently within the target range, with challenges both inside and outside of the country it is important to continue proactive fiscal policy and prudent monetary policy to achieve the right balance between stable and rapid economic growth, economic rebalancing and price stability. So, stabilising growth is of greater importance than we’ve see recently, and the government would like to “fine-tune policies in order to expand domestic demand and stabilise external demand”.
Now, we have heard that many times, but there has not been much success in expanding domestic demand, if that means consumption. And to be honest, I have no idea how on earth the government can stabilise external demand while the European economy (or as we know it, the second biggest trading partner of China) is going into a recession.