Listen to Xi, Li and the PBoC

Here's me commenting on leadership comments in May 30, 2014: One More Time: No Stimulus
The Chinese leadership has been extremely consistent in saying there will be no stimulus. I can understand if investors think there will be a stimulus once there are obviously problems in the economy, but the leadership has said it will not repeat 2008.

If there is a crisis in 2014 or 2015, it will be worse than 2008 because by nearly every measure (except the stock market) is at an elevated level: more debt, more real estate supply, higher home prices, greater inventory, etc. If the government is saying it won't repeat 2008, then I take them at their word and assume they will not launch a massive stimulus program to save the economy until it is too late, and even then, they may decide it is too late and decide instead to see a real recession through to the end.

In the People's Daily Overseas Edition, the point about no stimulus was driven home yet again and it specifically addresses the investment banks that are saying China will cut the reserve requirement ratio (RRR) or make other adjustments to aid the economy. Short of banging them on the head with the latest 5-year plan, I'm not sure what else it will take for people to get the message.
I went on:
They go on to say that the slowdown is structural, not cyclical. In other words, the slowdown is a result of the rebalancing. China's leaders clearly do not want to screw up their reform efforts by hitting reset and reinflating up the sectors that need to shrink relative to the overall economy. They would like to avoid a full blown recession in which these sectors decline rapidly, but if their goal is ultimately reform, I don't expect they will do much of any rescue effort directed at sectors such as steel, cement or real estate, if any type of rescue at all even arrives in time. Most likely, the economy will tip into a major slowdown, with a full blown recession still a possibility.
The only thing to change in there is that the reforms didn't really take hold. We're at the start of 2016 and only now is the real effort to rebalance about to begin because now there is no way out. Now the market is going to force a major adjustment if the government doesn't.

Here's a post on Li Keqiang from September 2015: NNo Large Scale Stimulus or Money Printing? No Need To Rush Into Housing
One week ago, I did a longer post touching on the topic: Li Keqiang: No Stimulus Coming.

A Chinese blogger explains the PBoC's message (iFeng): 别等降准了!央行说得很清楚了 (Do not wait for RRR cut! The PBoC has spoken clearly!)
First, the exchange rate issue. Some time ago yuan swings, and a certain degree of devaluation, under the central bank to turn the tide began to gradually stabilize. If you choose this time to cut interest rates or RRR, the exchange rate will depreciate again. The central bank wants to give everyone a forecast, in the near term no devaluation, it wants stablility.

Second, structural adjustment problems. Although economic growth is falling, but that does not need to take the old road of stimulus. Proposed supply-side structural reforms will be implemented, of course, also need stimulation. Late last year, some analysts said, this year's protagonist is not monetary but fiscal [government policy], the central bank will slow down the pace of interest rate and RRR cuts, to slowly adjust.
No more kicking of the can. We'll know very soon if the reforms begin in earnest or not, if actions match the talk, but the message from the leadership couldn't be clearer.

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