Chinese Official Admits There Is A Mini Stimulus; Long-Term Reform Favored Over Short-Term Stimulus

A Chinese official makes the first public admission that a mini stimulus policy is in effect, but some Chinese economists say that any stimulus is a mistake because the prosperity is only temporary.

There is no set meaning to the phrase "mini stimulus." The government used it because it opposes the big ￥4 trillion stimulus from 2008, but that leaves a lot of room for interpretation. The word is ambiguous because China's economy is at a "delicate" stage. The line between long-term reform and short-term stimulus are blurred.

Shen Jianguang of Mizuho said, "We won't see a repeat of the 2008 stimulus plan. In fact, the mini stimulus is this government's response to the hard landing risk, they are inclined to use reform and unleash market forces, such as through decentralization, speeding up approvals, to nurture and develop new growth and long-term competitiveness." He also says that if the RRR isn't cut, then the various stimulus policies will have limited effect. He also gives three reasons why a RRR hasn't come yet: the government wants to force reform; the government is waiting for a signal to cut; or the government is optimistic about the economy.

Of course, everything depends on China's actual (not man-made) growth rate:

The more important question is that Shen Jianguang doubts on fundamental issues, and that is, does the first quarter economic data really truthfully reflect the Chinese economy? He was the had many doubts about the first quarter data, and that the light from the data itself, insufficient to adequately predict the actual situation of China's economy, so on the basis of forecasts for the second quarter, third quarter, may be too optimistic.

Related: China's top development planners plot new direction

The mainland's economic planner sketched out the basis of a new generation of coordinated regional development policies yesterday that could herald a shift away from planning that previously focused on infrastructure expansion.

The initiatives include creating a massive regional hub in the north integrating Beijing, Hebei and Tianjin, deepening state economy reforms in the northeastern rust belt, and pushing forward industrial upgrading of the east and making it a testing area for more market reforms.

Officials at the National Development and Reform Commission said the new policies would help boost the quality of urbanisation and allow resources to be better allocated.

"This marks a major shift in China's urbanisation strategy," said Shen Jianguang, Mizuho Securities' chief economist for Greater China.

"The previous plans built many small cities in an attempt to absorb migrant workers, but ended up with lots of 'ghost cities' without creating enough jobs. Now, the focus should be shifted back to big cities."

官方首次承认微刺激存在 被评“不想让市场感觉到”

Experienced an economic slowdown after five months, the next government's "balancing act" facing a critical choice. Is fully relaxed monetary policy, such as an overall reduction in the deposit reserve ratio; still do not fully relaxed, but only a continuation of directional stimuli, such as stimulating some specific projects, it is sufficient to achieve "steady growth, adjusting structure, promoting reform, steady employment," the balance ? May be carried out simultaneously in both directions, but where is the focus, reflecting the depth of government reform

Micro-stimulation, in the end how "micro"? And how "stimulus"?

Macroeconomic Research Institute of National Development and Reform Commission Chen Dongqi recently in the State Council Information Office press conference that the government more "micro-stimulus" means this year to ensure the active fiscal policy, monetary policy steady, in line with the economic development needs, have an effect.

This is the first official recognition "micro-stimulus" exists and reasonable. The term micro-stimulation itself proves China's economy "delicate."

Subtle is that the Government has to balance the internal reforms, but also to prevent investors (particularly speculators) blind chaos, so there have been comments by the market as "side stimulus, while they want to feel stimulated the market," the tough tactics .

However, some scholars believe that even micro-stimulation is also wrong. "The government stimulate the economy? Stimulus this idea itself is wrong. Economy has its own rules, the government insists on going into the act, must only temporary prosperity, leaving the scourge." Esteemed international economic circles of the few Chinese economy scientist, a professor of economics at Tsinghua University , David , has been opposing the achievements for the moment, excessive intervention in the economy.

"Micro stimulus" significant subtle

The intensive Chinese government launched the "micro-stimulus" are focused on the market by releasing energy, to achieve both profit and benefit the long-term effects of this, and as far as steady growth, adjusting structure, promoting reform and improve people seek a balance of multiple targets

To predict the future, first locate now. The so-called market concerns, the government's balancing act, what happened?

Although Chinese leaders repeatedly stressed that "China does not need to stimulate the economy," but the market because of the economic data is indeed worried about the many measures from the Chinese government since the first quarter, almost all understood the market as "stimulus." In order to distinguish it from the 2008 financial 4 trillion yuan into the market directly, "massive stimulus" crisis, the market will be the government's measures to stimulate economic growth, taking a new name, called "micro-stimulation."

If entangled in the "micro-stimulus" meaning of the word, a lot of energy will be wasted. As the term comes from the market, the government has never officially acknowledged the wording of the term (although some scholars have used the conference), while the financial institutions and the interpretation of the word huge difference, there is no consensus, so "micro-stimulation" of the word ambiguity, itself shows that the phase of the Chinese economy "delicate."

Early in the first quarter, "International Finance," told reporters in communication with the chief economist of the major financial institutions, found that international investors' worries about China's economy has been relatively common, on the use of fiscal spending to stimulate the construction of infrastructure, even predict monetary easing to stimulate business investment, but also many other occasions discussed.

"Before the economic decision-makers choose the data released in the first quarter, announced 'micro-stimulus' policies, highlighting their concerns about the Chinese economy for the current mood, as if on cue, the first quarter GDP will fall below the government's target of 7.5%, when the expected additional measures, especially fiscal decentralization and quasi positive signal drop is expected intensive introduction. "Mizuho Securities chief economist Shen Jianguang accurate forward prediction has always been known for, as early as April 4, he made ​​such a decision , and the judge in the later government, market performance, and a step was confirmed.

To the end of April, has spread to even worry about whether it will break through the economic bottom line on the issue, in which "the chief economist at the Forum," and even the central topic of discussion, is set to direct "How to hold the bottom line of China's economy." Although at the time the first quarter economic data release, 7.4% GDP growth scare so many people feel, some financial institutions remain optimistic about the long-term growth, but economists on the difficulty of the current Chinese reform is still more than a concern.

In the end what is an established long-term reform measures, which are short-term economic stimulus, the boundaries have become increasingly blurred, panic in the market altogether all measures are understood as "stimulus" and even institutional analysis, "Every executive meeting of the State Council, will be a stimulus. "

General market view is that, compared to the short-term economic growth aimed at elevating the massive stimulus in the past, the Chinese government launched this intensive "micro-stimulus" are focused on the market by releasing energy, to achieve both long-term benefit of current and Lee effects, and as far as steady growth, adjusting structure, promoting reform and improve people seek a balance of multiple targets, called the market "a new prescription."

"Will not restart the massive stimulus package similar to the 2008 financial crisis, when the fact that the current round of micro stimulus, reflecting the new government in response to a hard landing risk, more inclined to release the vitality of the market through reforms, such as the use of decentralization, and other ways to speed up the approval of micro-stimulation, is committed to nurturing and developing new growth and more long-term competitiveness. "Shen Jianguang analysis.

Existing stimulus

Existing stimulus policies including the promotion of micro-enterprises to expand investment in infrastructure, increased investment, increased social security projects. In addition, tax cuts for the small and micro enterprises, simplifying procedures, such as trimming the resistance means a lot

What are the main stimulus?

Royal Bank of Scotland chief economist for Greater Louis Kuijs believes that China's economic reforms remain calm and deal with the attitude, do not jump on the bandwagon to create panic. He told the "International Finance News" reporter analysis, in his opinion, the Chinese government is indeed taking a strong stimulation, at least from the market data, "the second half of 2013 compared to 2014, loan volume has increased significantly ( Generally, the rise was to increase business investment and promoting economic performance), while the inter-bank interest rates to rise a lot (also on behalf of loan demand rises), "while the government clearly increased infrastructure investment, social protection of investment.

And other mainstream financial institutions in addition to Louis Kuijs economists, the more the systemic reform, including the reform measures included, are counted in the "stimulus."

Currently measures has obvious relevance, ie for a specific field are introduced specific measures, rather than reduce the deposit reserve ratio as a comprehensive monetary easing.

Combing the steady growth this year and reform measures, such as the May 9 State Council issued the "Several Opinions on Further Promoting the healthy development of the capital market", ie the new "National Nine" designed to better play to the capital market to optimize resources Configure role in promoting innovation and entrepreneurship, and economic and social restructuring of the sustained and healthy development; promote rail and other infrastructure, rural county to reduce the deposit reserve ratio of commercial banks, measures to promote slum upgrading and other areas to help steady economic growth; stable foreign trade foreign trade policy will enhance the quality and competitiveness of both the steady growth and structural adjustment; regulating financial institutions interbank business to more effective prevention and control financial risks.

Of course, focusing on the coordination between the various measures, especially between the real economy and financial reform, market appeal for government attention. In April alone, from tax cuts to small and micro enterprises, "subtraction", to speed railways and other infrastructure "addition"; From List "menu" to attract private capital "stable investment" to help companies streamline procedures "steady Foreign Trade ", the State Council executive meeting shot four times, played Policy" combination punches. "

Measures to whom Shi

Micro-stimulus policies implemented by objects in the end who should be? Existing policy is mainly aimed at small and micro enterprises. However, some scholars believe that cultivating large enterprises is consistent with economic laws

In the first quarter, the government first chose to support small and micro enterprises, to ensure a smooth job market. Chen Jianguang analysis, "round micro-stimulus First and foremost, is to support small and micro enterprises, to ensure a stable job market." The executive meeting of the State Council, for example, mentioned that small and micro enterprises will increase the maximum corporate income tax preferential policies to implement the range from annual taxable income of 60,000 yuan to further improve and policy deadline extended to the end of 2016, but in reality is support from the taxation aspects. The financial sector, the central bank monetary policy as previously mentioned in the report, the central bank has set up a separate credit policy to support refinancing and strengthen the "agriculture support small" credit, while ensuring that small and micro enterprises loan growth and incremental "two not less than "the end of the quarter, small and micro enterprises that loan growth over the same period of not less than the average growth rate of the loan, the loan is not lower than the level of the previous year increments.

And some analysts believe that this direction is also a fundamental bias, small and micro enterprises to promote economic growth is not obvious. Former Deputy Mayor of London, Institute of Finance, Renmin University of China has been a senior researcher John Luo Siyi to "International Finance" reporter stressed that "I find it difficult to understand, Chinese economists have been a misunderstanding that small and micro enterprises is to promote economic The main, but I think it does not comply with economic laws. "continued John Luo Siyi analysis to reporters," If the sake of economic growth, should foster more large enterprises. resource utilization is low small and micro enterprises, the contribution to economic growth efficiency is very small, of course, small and micro enterprises is a good way to promote employment, is not efficient because they need more people. "

In addition to the protection of housing construction, especially outside the shantytowns infrastructure, rail roads, stressed the important role of the capital market, to broaden the financing channels for enterprises, is also considered an important part of the stimuli. "Since late last year, repeatedly rising market interest rates, and increased corporate cost of capital, while the capital markets due to institutional barriers, for a long time hindered equity financing, pushing the non-financial corporate leverage ratio, increasing the financial system systemic risk. "Shen Jianguang analysis.

Therefore, in order to ease the financing difficulties and defuse financial risks, the State Council by the end of March of the six mentioned reform measures: specifically including actively and steadily push forward the reform of the stock issued registration system, regulate the development of the bond market, foster private markets, promoting the futures market, and promote innovation and development agency, to expand the capital market liberalization, facilitation of cross-border investment and financing inside and outside the body and so on.

7.4% in the second quarter to continue?　　

What are the next stimulus? Economic growth is likely to first see how. Although few people deny that China's economy is still a huge space, but is it really that optimistic about the short-term risk, the market has its own judgment

GDP growth rate of 7.4 percent in the first quarter, the second quarter it? State Information Center Zhu Baoliang, director of economic forecasting forecast is still 7.4%. His briefing at the State Council Information Office said it expects China's economy will continue "stable and little decrease" trend, GDP will grow by about 7.4%. Meanwhile, with the introduction of relevant macro-control policies and reform measures, the economic operation of the positive factors in the accumulation of strategic emerging industries and service good momentum of development, the adjustment will increase corporate initiative, stable consumer demand is expected in the second half of economy will continue to grow steadily.

However, another official researcher more emphasis on "stabilization." State Council Development Research Center of Macroeconomic Research Department, said Zhang Liqun, a researcher, a second-quarter economic growth is a stabilized approach. From the demand side, consumption stabilize; From an investment point of view, the overall stabilization of manufacturing investment. While exports also improved in the second quarter compared with the first quarter. From the demand side perspective, the second-quarter economic stabilization is a trend change.

Synchronized slowdown in the first quarter is also considered only appearance. National Development and Reform Commission deputy director of Institute SONG Economic Analysis said that economic growth in the value of the corresponding 3,4 month CPI index for each is different, and then deduct the price , the actual consumption is slowly rising, domestic demand is the rapid rise, the customs The data also picked up two consecutive months. Song Li stressed that the new project increased infrastructure more new index [ 0.33% ] increase in investment in infrastructure and other phenomena indicate that the speed of economic structure optimization.

JP Morgan analysts said Zhu Haibin, chief China economist, although exports, official data looks bad, but if the shield can be found by adjusting confounding factors, the actual growth in the first quarter of China's exports is 3% to 4%. After the U.S. and European economies improve, China's exports in the second half will be stronger than the first half.

Official recent intensive shots also help China's economy stabilized. Zhu Haibin analysts say, China's official policy on infrastructure, environmental protection, affordable housing and other aspects of the economy will bring some boost. From the structural point of view, the main problem of China's economic downturn is reflected in the manufacturing sector, the service industry is relatively more stable. Taking into account the proportion of service sector in GDP has exceeded the manufacturing sector, which will provide greater help stabilize the performance of the Chinese economy steady growth.

Chen Jianguang accurate forward prediction has been known for. "With the April successive major macroeconomic data released earlier on China's economic pessimism was confirmed again in April Chinese macroeconomic data worse than expected, a key indicator of investment, consumption and industrial production continued to decline, industry continued two and half years of deflation, showing the real economy is already quite weak. "

There are many questions in the first quarter economic data. Chen Jianguang by combining the microscopic indicators that macro data "unconvincing." He judged, "the actual economic situation is probably not as good as the data is displayed so optimistic."

Even if the data itself is real, the risk has not yet been reflected data. "Treat China in the first quarter economic data, there are a lot of incomprehension, even 7.4% higher than expected, we should not turn sorrow to joy, after all, the poor condition of the high-frequency data, microscopic entities are noteworthy feel colder . "Chen Jianguang analysis.

"In order to prevent the economy continues to stall, decision-makers still need to be vigilant, pay close attention to the implementation of steady growth policy." Chen Jianguang reminded, "In fact, only continue to pay close attention to the implementation of steady growth policy, a more active fiscal policy and to take timely RRR before helps prevent the economy continues to dip. "

Although the first quarter GDP growth reached 7.4%, better than market expectations, but considering the industrial production, investment and net exports have slipped to the high-frequency data has been the worst of the financial crisis and the long-term lending rates rose to make micro-enterprise Cheng pressure, Chen Jianguang worry real economy is probably worse here.

Comprehensive RRR? Directional stimulus?

Comprehensive RRR? Or continue on specific projects targeted stimulation? To focus on what, for the next economy and reforms more effective? Not only is the government's choice, but also market and the government's game

Market more concerned, perhaps the tide of economic reform, how to seize opportunities and avoid risks.

"The current policy and reform through dual drive in response to the economic downturn pattern has been formed. Coming on fiscal policy and monetary policy also needs to intensify." Chen Jianguang that fiscal policy, monetary policy should be more active.

Currently corporate loans, inhibiting the real economy, is one of the biggest concerns, and therefore lower the deposit reserve ratio, which in turn reduce lending rates, is considered a key measure to promote economic development entities.

Chen Jianguang predicted in the first quarter, China may need to lower the deposit reserve ratio, in order to stimulate investment. After the deterioration of the economic data for the second quarter, more times he stressed that "the overall drop quasi imperative." Despite the recent economic data, but still did not change his judgment on the overall economy, he accepted the "International Finance News" reporter, further stressed that "in the second quarter, third quarter, economic, will depend on the government introduced policies, such as lowering the deposit reserve ratio. "

If there is no overall reduction standards, all other stimulus effect will be greatly reduced, Chen Jianguang analysis to reporters. His overall drop quasi appeals more to consider long-term economic growth, especially in the real economy, not just short-term market performance. "China called prudent monetary policy, actually tight. Present large financial institutions reserve ratio as high as 20% in the global power is very rare, and this has been going on for a long time high."

RRR direct impact on corporate lending rates. "At present, although the short end of the market interest rates have come down, but the long end of the interest rate is still higher financing costs resulting in greater pressure on the real economy, shrinking demand, is not conducive to economic recession." Shen Jianguang analysis.

Currently the pressure of the financial industry, may be passed on to the real economy enterprises. "Last year, a total of five lines 590 billion loan writedowns, the highest record in the past 10 years, and the bank's bad debt rate increase, profits fell back, etc., are also displayed along with the economic slowdown, financial pressures have continued to increase. Additionally, Taking into account the long-term corporate loans will weaken, not conducive to the real economy, the second quarter is expected to drop more likely accurate, but the release of more positive signals that help stabilize market confidence. "Shen Jianguang analysis.

However, there is still no clear sign that the government may implement a comprehensive RRR. China really need such a comprehensive RRR easing to stimulate enterprises to invest in it?

Reporter comparative analysis of various financial institutions found that Chen Jianguang "comprehensive RRR imperative" for government advice and suggestions from the reminder, the proposed point of view, while others are more accustomed to speculation, rather than take the initiative to influence government action.

Royal Bank of Scotland Louis Kuijs, Goldman Li Cui believed that China's economy will gradually recover over the next few months, the Chinese government is unlikely to take such a large range of comprehensive RRR move.

"I do not think the next few months, the Chinese economy will be greatly improved, but at least there will not be too obvious deterioration, mainly because of global demand to pick up, brought to China to promote trade, and China Infrastructure Construction and other follow-up role in promoting stimulus brings. "Analysis Louis Kuijs told reporters. Goldman Sachs Global Macro research team Li Cui, speculation policy priorities will not be comprehensive monetary easing, such as lowering overall standards, but more in the real estate bailout.

Louis Kuijs think overall drop quasi-inevitable, but not now. "Despite the overall drop quasi China's reform eventually will go a step, but the government is not in order to promote growth in the coming months, to take the full measure. Currently, monetary policy has been relaxed a lot, has relatively abundant liquidity . "What's more, the central bank now prefer to let the market feel the economy is stable, Louis Kuijs said the government does not want comprehensive RRR, because the market will be understood as" the government is really worried about the economy, "and that the government is currently trying to avoid .

Of course, Chen Jianguang also takes into account these factors. When a reporter asked why the central bank has been reluctant to drop Chen Jianguang time, he analyzes three reasons, "the Government may wish to further Forced reform, it could be a signal drop quasi inconsistent with the current deleveraging efforts, even the government is judged on the economy overly optimistic. "


Overly optimistic about the government on the economy, Bank of America Merrill Lynch chief economist Ting Lu has made it clear that "the facts have proved that the economic decline was significantly worse than the government expected."

The more important question is that Chen Jianguang doubts on fundamental issues, and that is, in the first quarter economic data really truthfully reflect the Chinese economy? He was the author of many doubts devoted a quarter of the data, and that the light from the data itself, insufficient to adequately predict the actual situation of China's economy, so on the basis of forecasts for the second quarter, third quarter, may be too optimistic.

But this is temporarily unable to answer questions after the Chinese economy will give the answer. At least, as the NDRC researcher Yang Chang Chung told reporters, the "normal economy, we should let the market is different, even opposite judgment, the same as if the market expected, and that certain economic or policy a problem.