Massive stimulus measures would hurt China’s long-term growth and the government’s hesitation in making “bold moves” to support the economy is pragmatic, the official Xinhua News Agency wrote in a commentary.
“Many have expected the government to announce an aggressive plan, similar to the 4-trillion-yuan ($632 billion) stimulus package issued in 2008, to keep the economy from stalling for a second time,” Xinhua writer Liu Jie wrote in the commentary published yesterday. “However, a massive stimulus plan is not only unlikely, but would be detrimental to the country’s sustainable growth.”
China’s policy makers have refrained from easing monetary policy since cutting interest rates in July and fiscal support has been limited to tax cuts, encouraging loans to some industries and small companies and accelerating infrastructure project approvals. Premier Wen Jiabao said this week the country has “full confidence” it will meet this year’s economic targets.
“All they do now is just to boost confidence,” as they are “sanguine” about growth, Joy Yang, Hong Kong-based chief economist for Greater China at Mirae Asset Securities Co., wrote in a note today after meeting government officials from bodies including the top economic planning agency in Beijing last week. “Concrete plans, actions may have to wait until the new government takes over.”
The slew of infrastructure project approvals announced by the National Development and Reform Commission last week are already included in the nation’s current five-year plan and were aimed at increasing confidence rather than introducing any new stimulus, said Yang, who previously worked at the International Monetary Fund.
Stocks in China surged 3.7 percent on Sept. 7, the most in eight months, after the NDRC announced the approvals as investors speculated the government is stepping up stimulus to boost growth that may decelerate for a seventh quarter. The benchmark Shanghai Composite Index closed 0.8 percent lower today, the most in two weeks, after the Xinhua commentary raised concerns China’s growth will slow in the long term.
Morgan Stanley, UBS AG, ING Groep NV and Barclays Plc have cut their estimates for 2012 economic expansion to 7.5 percent amid slower industrial output and export growth and a smaller stimulus than they previously expected. That would be the lowest in 22 years and compare with 9.3 percent in 2011.
Pacific Investment Management Co., which manages the world’s biggest bond fund, estimates growth will slow even further in 2013 to about 7 percent and be “similar in subsequent years.”
“The engines of the previous Chinese growth model -- net exports and investment -- have reached their limits,” Ramin Toloui, Pimco’s global co-head of emerging markets portfolio management in Singapore, said in e-mailed comments today. “In the past, China’s leadership has risen to the challenge of accelerating reform during structural growth slowdowns, but this time there is the added challenge of a weak global backdrop.”
In its commentary, Xinhua said this time round, China is focusing on invigorating the private sector, improving social security and widening the yuan’s trading band rather than showering money onto investment projects. Policy makers are aware of the limitations of a possible stimulus plan and don’t want to disrupt the re-balancing of the economy, it said.
The State Council yesterday approved measures to support exporters amid a slump in sales to Europe, including speeding up the process for paying export tax rebates, expanding trade financing and boosting export-related insurance.
The policies were issued after China’s export growth fell to below 3 percent for the second month in August after gains of more than 20 percent in the same period last year.
The official China Securities Journal reported today that regulators have told banks to increase lending for infrastructure projects such as railways and roads to support the nation’s growth.
Yet banks’ ability to boost credit may be constrained by rising bad debts and declining profitability, Standard & Poor’s said in a report yesterday. Borrowers most at risk include local government financing vehicles, property developers and industries relying heavily on a domestic consumption boom, S&P said.
In a speech to the World Economic Forum in Tianjin this week, Wen said that while China’s expansion is slowing, it is more stable. The government has “ample fiscal and monetary policy space” to sustain growth, he said.
Based on the implementation of the budget so far this year, the government has about 5 trillion yuan to spend in the last four months of the year, which “is not significantly higher” than the same period last year, Citigroup Inc.’s Hong Kong-based economists Ding Shuang and Shen Minggao wrote in a note today.