by Chris Becker
Long iron ore stock holders are salivating at the prospect of another epic GFC style stimulus package from their capitalist cousins in the Middle Kingdom as another flood of Yuan hits asset markets.
It can’t come soon enough as the ASX200 drops 2% today taking back all of yesterdays gains, including iron ore stocks.
From AP News/Reuters:
China will adopt “stronger” fiscal policies to support growth, Beijing said as it seeks to soothe increasing fears about the world’s second-largest economy following turmoil in domestic and overseas markets.
The government will accelerate major construction projects, allow more small companies to benefit from tax cuts, and encourage private capital to invest in key areas, among other measures, the finance ministry said in a statement.
The finance ministry gave no specific values for future spending. But it said that by the end of August the central government had already spent 96 per cent of its annual infrastructure investment budget.
To achieve China’s 2015 growth target of around seven per cent, the ministry said it would step up and improve a “proactive fiscal policy, fine-tune the measures in a timely manner and accelerate reforms that will help stabilise growth”.
Leaders have taken a series of measures to bolster growth and curb falling share prices, including cutting interest rates last month for the fifth time since November and lowering the Chinese currency’s central rate against the US dollar by nearly five per cent in a single week.
But the benchmark Shanghai Composite Index has slumped nearly 40 per cent since mid-June despite official interventions that investment bank Goldman Sachs estimates have cost $US234 billion.
Is this really another new stimulus package or just confidence measures to keep asset markets quiet? This comes after Chinese authorities effectively shut down the mammoth futures market in Chinese shares and countless rounds of intervention costing some quarter of a trillion USD (against ca. $5 trillion in losses).
Although one thing in their favour is attempts to elevate the Yuan to a reserve currency, by fixing the fix – the gap between the market value and daily official value.
Still a long way to go, as the Chimerican peg cannot continue for much longer.