Targeted Stimulus Efforts Increase

While China refuses to launch a large general stimulus program, the small efforts are adding up.

Super-Size Me! China’s ’Mini’ Stimulus Starts Expanding
Nomura Holdings Inc. economists said measures including central bank loans for low-income housing are “starting to amount to something quite significant” as they scrapped their forecast for a second-quarter cut in banks’ reserve requirements. UBS AG said the government has gradually strengthened its mini-stimulus over the past couple of months and the central bank “has quietly eased liquidity conditions.”

The ruling Communist Party is trying to revive the economy without repeating the mistakes of its $586 billion stimulus begun in 2008, which caused a record buildup of debt and inflated property bubbles around the country. The State Council, or cabinet, said today it would lower reserve requirements for some qualified banks, after Premier Li Keqiang last week called on regional authorities to help stabilize expansion.

But is more coming?
Bigger moves may be in the offing. Nomura and Standard Chartered have forecast a nationwide reserve-ratio cut next quarter. Barclays Plc said in a note yesterday that chances are rising of more significant easing in coming weeks, such as “targeted” interest-rate or reserve-ratio reductions.

“There is increasing evidence that Premier Li Keqiang is probably more serious about the 7.5 percent growth target than hoped by those who have wanted the government to tolerate lower growth,” wrote Chang Jian, chief China economist at Barclays in Hong Kong.

According to the latest from the People's Daily, there is not going to be a RRR cut. One More Time: No Stimulus

If printing money solved all the problems then there would never be a crisis. If central planning worked, China wouldn't have a housing bubble or insane overcapacity in steel, cement and other industries. China went into a crisis in 2008 before the problems exploded in the U.S. Although U.S. subprime is the focus due to its global impact, China's domestic economy was well into a slowdown before the U.S. went into recession. I don't think it is a policy mistake to have a recession, in fact I believe the opposite, but if China doesn't want a recession then they clearly screwed up in 2007/2008 and then compounded their screw up with the stimulus in 2009/2010.

China's leaders are better able to plan for the long-term because they don't have to worry about elections. Chinese leaders are also better educated in fields such as economics. This is an advantage over democracies that choose leaders based on popularity, which often involves the candidate's looks, ethnic background, charisma and personality. That said, China's leaders are not superior to the market in allocating resources. In fact, China is at a disadvantage because the information they receive is distorted by their information controls and the fact that the party itself is distorting the information with its actions. China is Goodhart's Law run amok. (James Rickards discusses Goodhart's Law in the Death of Money).

If there's no crisis then no crisis was ever coming. If there is a crisis coming, there is nothing China can do to stop it; they can only decide how to deal with it. Thanks to their control over the economy the leadership has more control over where the costs pile up, but they cannot reverse the laws of economics.

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