Wen changes his tune

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.

Latest posts by __ADAM__ (see all)

Comments

  1. “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”

    How can a govt increase consumption as well?

    • Infrastructure (non housing) relating boom part 2 employs unemployed construction workers and provides them with cash to buy goods?

  2. From a commenter on a recent post from Michael Pettis:

    “In real estate, China’s constructions typically last 20 to 30 years before being demolished and re-built. Do you consider housing sector as investment or consumption?”

    Could the answer then be so simple? Expand consumption’s share of GDP by speeding up the KDR cycle!

  3. PBOC has made the same mistake the RBA has. imagining growth to be far stronger than it is. now they have realised this expect PBOC to do the same the RBA has….reverse policy mistakes pronto

    • I’m not so sure about this. The government has a stated policy of bringing down real-estate prices and re-balancing the economy towards consumption. They may have overshot the mark, but that may not be enough for them to consider it necessary for the PBOC to “reverse policy mistakes pronto”.

  4. Via Sinocism:

    “Premier Wen Jiabao seems worried about the economy. Yesterday he urged efforts to maintain growth – Xinhua and his comments made the front page of Monday’s People’s Daily–把稳增长放在更加重要的位置. Some bears are skeptical of the government’s ability to reinvigorate growth, believing that the government gas pedal may be connected through a fuel line with so much leakage that the gas will barely get to the engine now. Recently I have heard from too many very smart people who were not always so bearish that they now believe the tail risk of a serious crisis in China, while still relatively small, has gotten much fatter in the last couple of months.”

    http://news.xinhuanet.com/english/china/2012-05/20/c_131599662.htm

    The reference to “stabilise external demand” must be in the Chinese edition only.