China Has No Plan for Large Stimulus to Counter Slowdown
China has no plan to introduce stimulus measures to support growth on the scale unleashed during the depths of the global credit crisis in 2008, according to the nation’s state-run Xinhua News Agency.
“The Chinese government’s intention is very clear: It will not roll out another massive stimulus plan to seek high economic growth,” Xinhua said yesterday in the seventh paragraph of an article on economic policy, without attributing the information. “Current efforts for stabilizing growth will not repeat the old way of three years ago.” In 2008, policy makers unveiled a fiscal stimulus of 4 trillion yuan ($586 billion at the time).
China stocks fell as the report damped speculation of government policy action spurred by Premier Wen Jiabao’s call last week for a greater focus on growth. Stimulus restraint may reflect concern that the record lending boom that helped the nation weather a contraction in trade in 2008-2009 raised risks of a bad-loan crisis.
“They have to strike a delicate balance between doing something to stabilize growth and not overshooting,” said Shen Jianguang, Hong Kong-based chief Asia economist for Mizuho Securities Asia Ltd., who previously worked for the International Monetary Fund and European Central Bank.
The Hang Seng China Enterprises Index dropped 2.3 percent as of 10:46 a.m. in Hong Kong, the biggest drop in two weeks. China’s benchmark Shanghai Composite Index (SHCOMP) lost 0.2 percent, following a 1.9 percent gain since Wen’s call for growth was published May 20.
Yesterday’s Xinhua article made no mention of central bank tools including interest rates and the reserve-requirement ratio, previously used to bolster growth. It carried the byline of two reporters and wasn’t labeled as opinion or commentary.
Pumping in government money to achieve growth targets is “not sustainable” and China will instead focus on encouraging private investments in railways, infrastructure, energy, telecommunications, health care and education, the story said.
Wen repeated his call for stabilizing growth and reiterated that the economy faces increasing downward pressure, according to remarks published today by the Hunan Daily, citing a speech the premier gave on May 25 in the southern province.
The National Development and Reform Commission may be accelerating construction approvals as part of China’s response, with the planning agency last week saying that Baosteel Group Corp. and Wuhan Iron & Steel Group won permission to build 134 billion yuan ($21 billion) of new factories. The NDRC had delayed approving the two steel projects in 2009, citing industry overcapacity.
China’s tilt toward supporting expansion followed data showing trade below forecasts in April and industrial production rising the least since 2009. Europe’s debt crisis and austerity measures are threatening exports.
Agencies including the finance ministry, agriculture ministry and the securities regulator will introduce their own measures to stabilize growth, Xinhua said.
Economists at Credit Suisse Group AG and Standard Chartered Plc said May 28 that stimulus will probably be smaller than the 2008 package. Alongside the fiscal measures, China during the credit crisis lowered interest rates, halted appreciation in the yuan against the dollar and oversaw a record credit boom of more than 17.5 trillion yuan in 2009-10.
Credit Suisse said spending on investment this time around will probably range from 1 trillion yuan to 2 trillion yuan. Standard Chartered said China is starting a “mini-me” version of the prior stimulus.
“The State Council is introducing a measured but still significant set of stimulus measures, which should begin to affect growth in August-September,” Standard Chartered economists led by Stephen Green in Hong Kong wrote in a note to clients this week. Concern that a surge in credit would lead to faster inflation and higher property prices will be reflected in “a much more controlled pace of bank lending,” they wrote.
Bank of China Ltd. sees slower loan growth in 2012 than last year and has no plans to relax its lending policy, President Li Lihui said today at a shareholders meeting in Beijing.
Elsewhere in the Asia-Pacific region, Australian retail sales unexpectedly fell 0.2 percent in April from the prior month after a revised 1.1 percent advance in March, a report showed today. New Zealand home-building approvals fell 7.2 percent to 1,385 in April from a month earlier after a revised 19.6 percent gain in March.
Euro Area Sentiment
In the euro area, an index of executive and consumer sentiment probably fell for a second month to 91.9 in May from 92.8 in April, a Bloomberg News survey showed ahead of a report due later today.
Sweden’s economy may have expanded 0.2 percent in the first quarter from the fourth quarter, when it contracted 1.1 percent, a Bloomberg survey showed.
Pending sales of existing homes in the U.S. were probably unchanged in April from March, when they climbed 4.1 percent, according to a Bloomberg survey of 42 economists. The Mortgage Bankers Association’s weekly index of mortgage applications for the period ended May 25 is also due today.
China’s economy is forecast to expand 8.2 percent this year, based on the median estimate of analysts surveyed this month by Bloomberg News. That would be the least since 1999.
“The authorities won’t give the impression that they are repeating what they did with the massive stimulus in global financial crisis,” Mizuho’s Shen said. The government’s tone “may also partly reflect their genuine concerns about not committing the same mistakes as in the 4 trillion yuan stimulus,” he said.
Speeding up Approvals
The nation has sped up the approval process for major projects, Xinhua said May 28. The country will also encourage greater private investment in banks, according to guidelines released by the China Banking Regulatory Commission in a statement posted on its website May 26.
The People’s Bank of China on May 12 lowered banks’ reserve ratios by 50 basis points, the third cut in six months.
“Unlike in 2008 when the Chinese government rushed to spend, the new stimulus package will be small and modest,” said Zhang Xinfa, an economist with China Galaxy Securities Co. in Beijing. Bank lending will play a smaller role in the new round of investment, he said.
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