BEIJING |
BEIJING May 30 (Reuters) – China does not need massive
fiscal stimulus to stabilise growth and calm investors fretting
that the global economy may slip back into a similar crisis as
2008-2009, top policy advisers said on Wednesday.
Even though China’s economic growth is expected to ease this
year to its weakest pace in 13 years, aggressive spending now
could do longer-term harm, they said.
“I don’t think we’re back in that kind of acute crisis
phase,” Richard Boucher, deputy secretary general of the
Paris-based Organisation for Economic Co-operation and
Development (OECD), told Reuters.
Boucher’s is the latest voice to play down the need for a
massive stimulus programme of the sort unleashed by Beijing at
the height of the global economic crisis.
Investors have speculated wildly this week about potential
stimulus from China, looking to the biggest driver of global
growth as Europe’s deepening debt crisis erodes market
confidence in the health of the world economy.
Many traders now see parallels to the 2008-09 crisis – when
the world’s banks lost trust in each other, the international
financial system nearly came undone and global trade ground to a
halt – especially as more evidence emerges of the slowdown in
China’s economy.
The crisis saw Beijing unveil a 4 trillion yuan ($635
billion) stimulus programme to fight a downturn that cost 20
million Chinese jobs in a matter of months. The stimulus helped
underpin investor faith in the international policy response to
solve the crisis.
Expectations of fresh Chinese stimulus have been fuelled by
government steps in the past two weeks to fast track some
infrastructure and industrial projects, which economists
estimate to be worth around 1 trillion yuan.
Premier Wen Jiabao was quoted on a government website on May
23 saying that “downward economic pressure is increasing.”
Boucher – deputy head of the organisation that bills itself
as the global policy think-tank to the world’s most important
economies and in Beijing for a conference on international trade
- said China had ample policy tools at its disposal without
resorting to fiscal stimulus.
“It is not just a question of money,” Boucher said. “The
Chinese authorities have a whole variety of tools to use to
stabilise the right level of growth… I think signs that
Chinese growth is stabilising at a steadier level, a more
sustainable level, would be good for everybody.”
SLOWER GROWTH, MORE REFORM
China’s leaders have repeatedly said they would use a period
of anticipated slower growth in 2012 to carry out structural
reforms, particularly to government-administered prices that
would otherwise stoke inflation risks.
Beijing in March lowered the country’s official growth
target to 7.5 percent for this year from 8 percent previously.
It has a target of 7 percent on average over the five years to
2015. The most recent Reuters poll produced a consensus forecast
for 2012 growth of 8.2 percent.
Such growth is way above an ill-defined “hard landing”
scenario that investors had largely dismissed by the end of
March, but which has begun to creep back into the consciousness
of markets after weaker-than-expected April data.
China’s annual economic growth is expected by analysts to
fall to 7.9 percent in the second quarter, the first dip below 8
percent since 2009.
But slowing growth alone does not imply a hard landing, said
Xia Bin, head of the financial research institute at the
cabinet’s think-tank, the Development Research Centre.
Xia, who was a member of the central bank’s monetary policy
committee until March, said a hard landing would bring a sharp
rise in both banking sector risks and unemployment, posing a
threat to social stability.
In contrast to the global financial crisis, China’s labour
today is tight as firms struggle to fill vacancies.
Non-performing bank loans are around 1.1 percent – far below
international averages.
Meanwhile there is room for the central bank to cut lending
rates to help deal with the risks to growth and corporate
profits but excessive policy action should be avoided, Xia said.
“Americans and Europeans like it. Investors like it because
they want to speculate on stocks. The whole world is hoping
China will relax policy,” Xia told Reuters.
“We will fall into a trap if we do. We will not be that
stupid,” Xia said, adding that the government should only
stimulate economic growth in a “balanced and modest” way, while
forging ahead with structural reforms to sustain growth over the
longer term.
With that in mind, China’s cabinet on Wednesday approved a
blueprint to promote seven strategic industries by 2015,
including next-generation information technology, biotech,
industrial materials and advanced equipment manufacturing.
STIMULUS SPECULATION
China’s 2009-10 stimulus programme sparked a wave of
speculative real estate development, lifting home prices way out
of reach of many middle class Chinese. It drove inflation to a
three-year high and saw local governments build a 10.7 trillion
yuan mountain of debt.
Beijing has only just brought inflation under control,
helping explain why growth is being sacrificed short term.
Analysts cite a two-year long programme of property curbs as the
main reason why China’s economic growth in 2012 will be the
slowest since 1999.
Boucher and Xia echoed a chorus of commentary from top
Chinese academics in leading state-backed newspapers on
Wednesday that Beijing should spur growth, but shun stimulus.
Earlier this week, an official at China’s top economic
planning agency, the National Development and Reform Commission
(NDRC), said large-scale economic stimulus was unlikely.
An article published on the website of the official Xinhua
news agency said China had no plan to repeat the powerful
stimulus measures used during the global crisis in 2008.
“The Chinese government’s intention is very obvious: It will
not unveil another massive stimulus plan to stimulate economic
growth,” the Xinhua article said, without citing sources.
“Current policies to stabilise growth will not repeat the old
way of stimulating growth three years ago.”
It was not clear if the article, which also cited analysts,
represents official thinking – Beijing usually publishes
straight-forward commentaries, not analyses, when it wants to
explain its stance.
But the story was in line with the mainstream view among
Chinese policy advisers that Beijing should avoid massive
stimulus that would reduce the efficiency of economic growth and
exacerbate overcapacity in some industries.
Chen Bingcai, a professor at the National Academy of
Governance, said China must not overly expand investment and
sacrifice quality growth for high growth. Chen’s school teaches
and trains many senior leaders of the central government.
“If Beijing returns to an investment boom again, the
previous call of adjusting the economic structure would turn out
to be nothing but empty talk,” the official China Securities
Journal cited Chen as saying.
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