Li Signals Reluctance on Stimulus to Boost China Growth
Chinese Premier Li Keqiang signaled policy makers are reluctant to use stimulus to counter a slowdown in the world’s second-largest economy because the risks outweigh the benefits.
“To achieve this year’s targets, the room to rely on stimulus policies or government direct investment is not big -- we must rely on market mechanisms,” Li said in a May 13 speech broadcast to officials around the country, according to a transcript published last night on the central government’s website. Relying on government-led investment for growth “is not only difficult to sustain but also creates new problems and risks,” he said.
Li’s most extensive economic comments in almost two months indicate China may be unlikely to boost government spending or follow central banks across Asia in cutting interest rates as he tries to pare the state’s role in the economy. Bank of America Corp. and JPMorgan Chase & Co. this week lowered 2013 growth estimates to 7.6 percent after April industrial production and investment trailed forecasts.
“The comment suggests that there won’t be any large-scale stimulus, but that doesn’t mean the government won’t try at all to boost growth,” said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong. “The growth in the first first four months is too weak for the government to be fully relaxed.”
Last year China cut interest rates twice and accelerated investment approvals in response to slowing growth.
Li made the remarks at a nationwide teleconference on reducing’s the government’s role in economic development. The government will cut unnecessary checks and approvals to boost private investment, Li said. The country’s growth is under “relatively large” downward pressure, he said.
The remarks don’t necessarily mean China will pay less attention to expansion. The nation needs to “make the cake bigger” to support growth and employment, President Xi Jinping said yesterday during a visit to a jobs center in the northern city of Tianjin, according to a message posted on the Weibo microblog account of the official Xinhua News Agency.
The benchmark Shanghai Composite Index (SHCOMP) rose 0.4 percent at the close, the first gain in three days. Commodity producers including Yunnan Aluminium Co. and coal producer Wintime Energy Co. fell.
Li’s predecessor, Wen Jiabao, rolled out a 4 trillion yuan stimulus ($586 billion at the time) and an unprecedented bank lending spree at the end of 2008 to shield the economy from the global financial crisis, leaving an overhang of debt from loans.
Rather than stepping up government aid, China needs to break an “administrative monopoly” in finance, telecommunications, logistics, health care and education to boost growth of service industries, Li said in the speech. “The barriers to entry in these areas are high or very high, but the potential of these areas is huge for China,” he said.
Economic growth of 7.7 percent in the first quarter trailed the median forecast of 8 percent in a Bloomberg News survey and fourth-quarter expansion of 7.9 percent. The government in March set a 2013 goal of 7.5 percent, the same target as in 2012.
Li’s comments reinforce Nomura Holdings Inc.’s view that any policy easing is unlikely, at least this quarter, and growth may slow to 7.5 percent in the April-June period, Zhang Zhiwei, chief China economist in Hong Kong, said in a note today.
That outlook is shared by economists at Bank of America led by Lu Ting, head of Greater China economics in Hong Kong. “We don’t expect China’s new policy makers to introduce any significant incremental stimulus measures,” they wrote in a note yesterday. “Neither do we expect rate cuts.”
In the Asia-Pacific region, Australia, India, South Korea, Vietnam and Sri Lanka have cut interest rates this month, while the Bank of Japan last month unveiled a record monetary stimulus program. Global easing has helped push the yuan to a 19-year high against the dollar this month and spurred capital inflows that companies are disguising as trade, inflating official export figures, according to economists including Lu.
Li’s strategy for growth includes a call to unleash private investment by simplifying bureaucratic procedures. “Private investors have money but no place to invest; they want to enter certain areas but they can’t find the way,” Li said. A company has to spend six to 10 months seeking approvals at 27 government departments to start a new investment project, he said.
The central government will delegate more power to local governments in approving new projects, he said. “Not every matter has to come to Beijing for approval,” he said.
Kowalczyk of Credit Agricole CIB said the streamlined regulatory procedures on private investment may help China’s growth over the long run.
“The odds of a government stimulus are very, very small,” Andy Rothman, China macro strategist for CLSA Asia-Pacific Markets in Shanghai, said May 13 in a Bloomberg Television interview.
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