The talk of stimulus continues in China. Today, Sichuan Province announced a major investment projects plan, with 2242 projects and total investment of RMB3.67 trillion according to China Securities Journal. The provincial government wants to encourage private capital investment, very much like many other local governments (and indeed the central government).
Total investment being announced by local governments and other bodies amounted to tens of trillion now.
Despite all the talks about stimulus, and despite some people clearly taking all that very seriously, the impact of all the “stimulus” being announced has simply not been felt, rather unsurprisingly (to me at least). A team from Barclay Capital recently went to China and talked to companies:
Going into our China field trip we did not expect to come out very bullish – and we didn’t. The slowdown in China is unambiguously evident. Any material recovery in underlying demand will not be until 1H13 at the earliest. None of the c.20 companies and traders we visited had seen any impact of stimulus on the ground and all were extremely sceptical on funding of the plan.
There are areas of so-called “green-shoots”, but not all in areas that the government would like to see (i.e. real estate related), and partly due to the slowdown of activities since last year gives a lower base for comparisons:
1) the property-related market as housing sales have turned up decisively since March; the lagged effect on new starts should have some positive impact on the property laterals (cement, steel, copper); and 2) the destocking in the industrials complex (especially machinery, autos, white-goods) is in the process of bottoming and even a normalization of sales (ie, without the destocking effect) can lead to growth. Comps are getting increasingly easy and headline numbers are going to look good as the months roll on, even if sequential pick-up in underlying demand is unlikely to materialize.
Going back to Sichuan’s project, the problems remain the same. While it is theoretically possible for all these projects to get funded (ultimately by printing money, of course), there is nothing which suggests that the central government actually wants to see this happening. In particular, we see absolutely no reason why the private sector, which is probably deleveraging, would ever want to invest into projects which most likely offer little return. In other words, the private sector will not help the economy, and the public sector (i.e. the government) may not be too keen to repeat what they did in 2008/09.
I remain unimpressed.