Reform, Not Stimulus

Over the holiday, Li Keqiang once again reiterated the need for reform, not stimulus. The audience for this message is the party. Li Keqiang doesn't care about foreign investors and even less so foreign economists. He is telling party members to get with the program. If foreign observers are still looking for a stimulus plan from China, they are refusing to see the evidence in front of them.

Premier Li Keqiang makes case for deeper economic reforms over stimulus

Li (pictured) said in an article published yesterday that pushing through deeper economic reforms was a wiser and more courageous approach than relying on government spending and borrowing to produce growth.

The 10,000-character article, headlined "Several questions regarding deepening structural reforms", was published in the magazine Qiushi, or Seeking Truth, a political periodical published by the Central Party School and the Communist Party's Central Committee.

......Li said the government must facilitate more reforms by giving more power to the market. He reiterated his administration's promise to cut the number of permits and initiatives that need government-approval by a third.

It is also important to consider how the slowdown affects reform. Lower home prices will accelerate the urbanization drive and increase disposable income, boosting the domestic economy. Higher interest rates lead to higher levels of consumption because savers can reach their goals with smaller amounts of capital. Anything that harms state-owned banks and state-owned companies is not necessarily a problem because different industries are controlled by different factions in the party.

Complete text of Li Keqiang's article (in Chinese): 《求是》刊发李克强总理文章：关于深化经济体制改革的若干问题

Important words: decentralize, hard choices, courage, wisdom, tax reform, budget reform, reduce red tape, market forces.