2012-05-30

China will not inflate in 2012

China Has No Plan For Large Stimulus To Counter Slowdown
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.
This must be understood within the political context. A major stimulus plan would funnel money to the state owned companies and delay China's economic transition. Simply put, the stimulus plan was "Bo Xilai" style, and Bo isn't around anymore. The area where you will see stimulus is tax reform and tax cuts. Reagan-style massive tax cuts will come next year (maybe announced late this year), but between now and then there's the leadership transition, which is why things will remain turbulent for the bulk of 2012.

No comments:

Post a Comment