This story just in from The Wall Street Journal. Please note that the growth rates for GDP are from the Chinese Dictatorship. In reality, China's GDP is now definitely in contraction. The discrepancy has to do with how we measure GDP and with the environmental and social costs of what is misleadingly called "growth" in China. Of course, there are many ways to kick the can of "growth" down the road by hiding or not accounting for the debt building up in the financial system - which is what this article emphasizes.
May 11, 2019 7:00 a.m. ET
A new round of U.S. tariffs poses
a big challenge for Chinese officials trying to manage an already-stumbling
economy.
Having just pumped heavy doses of stimulus into
their system to manage a slowdown, do they now pump in even more and risk
exacerbating long-term problems, such as the economy’s heavy reliance
on debt?
China’s economy buckled last year, and it wasn’t all because of
the trade fight with the U.S.
Beijing launched a campaign two years ago to crack down on
lightly regulated lending sources known as shadow-banking firms. Private firms
that relied on these lenders found themselves short of cash, and a slew of
defaults on bonds and notes issued by the private firms roiled markets and
dented confidence. Central bank Gov. Yi Gang acknowledged the debt crackdown
hurt private businesses.
A tariff
cease-fire declared by President Trump and Chinese President Xi
Jinping in December helped restore confidence, buying time for Beijing to spur
economic growth. Beijing ramped up spending by both the central government and
local governments, particularly on large infrastructure projects, and relaxed
restrictions on shadow banking.
The amount of stimulus injected into the economy in the first
three months this year was stunning to some analysts. Larry Hu, an economist at
Macquarie Group, says policy makers went into “panic mode,” pumping 2 trillion
yuan to 3 trillion yuan ($293 billion to $439.5 billion) of extra spending and
credit into the economy. Government spending on rail, highway and other
transportation projects jumped 47% in the first quarter from a year earlier.
Outstanding credit growth—including bank loans and bonds
issued by companies—grew 10.7% at the end of the first quarter from a year
earlier, central-bank data showed. Local governments used up 40% of their
annual new-bond issuance quota in the first quarter alone, leaving limited room
for localities to borrow later in the year, Moody’ssaid.
The efforts seemed to pay off: The economy expanded 6.4% in the
first quarter from a year earlier, according to government data. The pace was
the same as the end of last year—pointing to stabilization—and industrial
production, lackluster at the start of the year, roared in March.
But some analysts worry that China’s ammunition is becoming
constrained. After tax cuts, total tax revenue growth slowed sharply in the
first quarter due to a drop in personal income tax collections. Slowing revenue
but faster spending drove up the central government’s deficit. The government
targets a deficit of 2.8% of gross domestic product this year. Economists say
the actual deficit is already on track to top that target.
Newsletter Sign-up
Worries about excessive borrowing nag at officials. A statement
issued after the Communist Party leadership’s Politburo meeting last month
mentioned the need for long-term deleveraging for the first time since late
last year. Credit growth, including bonds and loans, slowed in April. Big-city
governments have also started tweaking controls to limit housing purchases, a
sign that some of the easy credit unleashed earlier this year is feeding
renewed property speculation.
Some economic indicators have started to look wobbly again.
Activity in the manufacturing sector dropped unexpectedly last month. Exports
fell, too. Many suppliers of machinery and industrial and building materials
say any pickup in activity from earlier this year had eluded them because their
costs were also rising.
“It’s hard to say how this year will turn out. Let’s see how
this summer goes,” said Duan Zhimin, general manager of Baoding Lenno Composite
Materials Co., a maker of industrial tapes and film used in trains, aircraft
and wind turbines. New orders, he said, are falling.
Under President Xi’s reign, whenever there is a trade-off
between short-term growth and long-term structural reform, growth has taken
priority. Early in the year, when growth was staggering, Mr. Xi used the term
“stability” in a speech a dozen times.
Shortly after President Trump threatened new tariffs this month,
China’s central bank announced a cut to the portion of deposits set aside as
reserves for some smaller banks in an effort to boost lending for private
firms. Many in the financial and business communities took it as a sign that
more easing may be ahead.
Investors and policy makers may have been a bit too optimistic
about recent signs of a spurt in economic activity, say analysts at Nomura
International. The sudden escalation of trade tensions and the recent selloffs
in the stock market could convince Beijing to take further easing measures to
stabilize growth, the bank said.
Another challenge looms. Prices are rising, and not just
for food due to the deadly virus
decimating pig herds, but also for producers and services.
That, says Sealand Securities economist Fan Lei, raises the prospect of
stagflation—when economic growth cools but prices heat up. Liu Guoqiang, a
central-bank deputy governor, said after a briefing last month that rising pork
prices are on officials’ radar.
Mr. Hu of Macquarie sees the risk of a further slowdown
following a brief stabilization in economic growth. He expects economic growth
to slow to 6.2% in the second half of the year. Stimulus and a growth spurt
came quickly this year, he said, and they may be gone fast, too.
—Liyan Qi
No comments:
Post a Comment