|
Analysis: China growth risks signal need for fiscal action By Nick Edwards Posted 2012/05/13 at 11:01 pm EDT BEIJING, May 13, 2012 (Reuters) — China may need a back-up plan to stop economic growth being cutshort by a surprise dip in demand at home and abroad that suggestsmonetary policy easing steps taken since the final quarter of lastyear are insufficient to deal with the downturn. The People's Bank of China cut the amount of cash that banks musthold as reserves on Saturday, freeing an estimated 400 billion yuan($63.5 billion) for lending to add to the roughly 800 billioninjected in two previous 50 bps cuts since the government tiltedits policy stance towards growth in October. The move came after data on Friday showed the economy weakening,not recovering, from its slowest quarter of growth in three years.Industrial production growth slowed sharply in April and fixedasset investment - a key growth driver - hit its lowest level innearly a decade, confounding economists expecting signs of arebound in Q2 data. "There are risks that policy loosening may under-deliver. If fiscalspending doesn't speed up quickly, GDP growth faces the risk ofgoing below 8 percent in Q2," Zhiwei Zhang, chief China economistat Nomura in Hong Kong, told Reuters. "The critical factor to watch now is fiscal policy. We expect morepolicy measures on this front will be announced in coming weeks.Premier Wen said on April 13 that "we need to prepare back-up plansin case growth weakens further". Now that growth has indeedweakened more, it is time for the back-up plans to be rolled out,"Zhang said. April 13 was when China revealed its weakest three months of growthon an annual basis in nearly three years, at 8.1 percent. Back then many economists, including Zhang, thought that would markthe bottom of China's current downswing - especially as new banklending data for March published the day before had topped 1trillion yuan in the strongest showing in a year - and triggeredwidespread raising of bearish 2012 growth forecasts. Last week's data, by contrast, saw economists at UBS and Bank ofAmerica/Merrill Lynch slash their growth estimates within hours ofthe numbers being published and call for policy action to achievegrowth of around 8 percent, widely regarded as government's aim,rather than the 7.5 percent official target. FASTER, FATTER SPENDING Faster, fatter spending on infrastructure and social housing, moretax breaks for business and incentives to boost consumer spendingare among the typical additional measures called for. That would be on top of the measures already anticipated -including another 100 bps of required reserve ratio cuts for banksin the second half of the year - to keep growth on track. "We were wrong and we revise down growth forecasts," was thestraight-to-the-point heading in the message line of an email sentto clients by Ting Lu, China economist at Bank of America/MerrillLynch in Hong Kong after Friday's torrent of data drowned his callof a Q2 GDP bounce to 8.5 percent. He now expects growth of 7.6 percent in Q2 and 8 percent for theyear versus 8.6 percent previously. The consensus forecast for 2012growth in the benchmark Reuters poll before Friday's data was 8.4percent. Lu is struggling to understand why the April data was so far awayfrom market expectations and thinks a new reporting systemrequiring China's 700,000 biggest manufacturers, representing 90percent of the total value added in the factory sector, to submitnumbers directly the National Bureau of Statistics in Beijing -rather than local offices - might be the root cause. Whatever is behind the drop-off, the new consensus view is thatBeijing will have to raise its game to stop the rot. Especially as trade data earlier in the week saw an annual rate ofexport growth around half the level expected and growth in importsgrinding to a halt on a nominal basis in April, underlining China'svulnerability to weakness in global demand for goods produced inthe country's vast factory sector. "The April data reconfirmed our view that the first quarter was notthe bottom. If anything, the trend seems to be slightly worse thanwhat we had priced into our call for 7.8 percent year-on-year realGDP growth in Q2," Yao Wei, China economist at Societe Generale inHong Kong told Reuters. Yao expects action on three fronts - accelerating infrastructureinvestment, easing property tightening policies and rolling out apackage of tariff cuts and consumption incentives. CREDIT DEMAND KEY Whatever Beijing's fiscal response, few expect stimulus spendingmodeled on the 4 trillion yuan ($635 billion) splurge unveiled inthe wake of the 2008-09 global financial crisis, which buoyedgrowth but triggered spikes in inflation and real estatespeculation that the government spent two years correcting. Meanwhile further easing in monetary policy is likely to have toboost demand for credit, rather than simply making it available.Chinese banks need to lend about 850 billion yuan in both May andJune to hit the 2.4 trillion yuan Q2 lending quota the marketbelieves Beijing is working towards. Monthly loan growth of 800 billion has only been achieved eighttimes since 2004, five of those occasions while China was rollingout its 4 trillion yuan stimulus program. That, for many analysts, makes a fiscal response more likely giventhe government's deep pockets after a record tax take in 2011 and amodest deficit target of 1.5 percent of GDP - especially as goingdown that route makes it easier for Beijing to order loans to beextended to hit the credit creation target. And with a leadership transition looming towards the end of thisyear, analysts are certain that China's Communist Party chiefs willdo all they can to engineer a soft landing for the economy and assmooth a handover of power as possible. "A quickened and strengthened policy stimulus is key forstabilizing China's growth in the coming months. Chances of moreaggressive easing have increased," analysts at HSBC said in aclient note. "The immediate delivery of RRR cut right after the weak April datasuggest that Beijing is responding actively. We expect moreaggressive delivery of policy stimulus via quantitative easing,substantial tax breaks, fiscal spending and investment deregulationin the coming months to ensure a soft landing." ($1 = 6.3106Chinese yuan) (Editing by Alex Richardson). I am an expert from tempered-SafetyGlass.com, while we provides the quality product, such as Borosilicate Float Glass Manufacturer , China Curved Tempered Glass, Curved Tempered Glass,and more.
Related Articles -
Borosilicate Float Glass Manufacturer, China Curved Tempered Glass,
|
