Main­land China author­i­ties need to raise eco­nomic game: an­a­lysts


Slow­ing growth, slump­ing stocks, sus­pect data: the world’s sec­ond-largest econ­omy is send­ing shock­waves through global mar­kets, and flail­ing author­i­ties ap­pear in­creas­ingly asleep at the wheel, say an­a­lysts.

The Shang­hai Com­pos­ite In­dex recorded its big­gest fall for more than eight years on Mon­day, re­new­ing the plunges in main­land China’s bench­mark stock in­dex.

It comes as pes­simism about the state of the coun­try’s broader econ­omy is in­ten­si­fy­ing, form­ing a lethal com­bi­na­tion that has sent global mar­kets into a tail­spin.

Main­land China’s lead­er­ship for years has claimed credit for trans­form­ing the econ­omy with decades of dou­ble-digit growth.

But now its huge res­cue pro­gram is fail­ing to ef­fec­tively sup­port the stock mar­ket, and mea­sures that might help in­still much needed con­fi­dence in the real econ­omy — such as cut­ting taxes and low­er­ing in­ter­est rates much fur­ther — are miss­ing in ac­tion.

Ul­ti­mately author­i­ties had to re­store faith that they have a grip on the sit­u­a­tion, said Christo­pher Bald­ing, an economist at Pek­ing Univer­sity’s HSBC Busi­ness School in Shen­zhen.

“They need to demon­strate much bet­ter lead­er­ship on this is­sue,” he told AFP, stress­ing that some­one needs to be put “in charge in com­ing out with a con­sis­tent mes­sage.”

Much more ag­gres­sive in­ter­est rate cuts were needed, he added, with pro­ducer prices fall­ing 5.4 per­cent year-on-year in July, the 41st con­sec­u­tive month of fac­tory gate de­fla­tion.

China’s eco­nomic growth has been on a clear down­ward trend for sev­eral years, some­thing many see as a de­sir­able de­vel­op­ment that, with con­sumer spend­ing rather than in­vest­ment driv­ing growth, will be more sus­tain­able than the break­neck pace of the past.

But such a change takes time and re­tail ac­tiv­ity has yet to step up to com­pletely fill its ex­pected role, even as in­vest­ment growth slows.

Andy Xie, a Shang­hai-based in­de­pen­dent economist for­merly with Mor­gan Stan­ley, told AFP author­i­ties should cut taxes by up to two tril­lion yuan (US$312 bil­lion) for sev­eral years, cit­ing sim­i­lar moves by the United States in 2008 in re­sponse to the global fi­nan­cial cri­sis.

“That’s a very pow­er­ful way to stim­u­late con­sump­tion,” he said.

“It’s just a mad­ness now,” he added. The main­land Chi­nese gov­ern­ment, he said, “is not fo­cus­ing on the econ­omy. The gov­ern­ment’s mind is some­where else.”

Main­land China’s rul­ing Chi­nese Com­mu­nist Party and author­i­ties are cur­rently de­vot­ing much of their at­ten­tion to a mas­sive mil­i­tary pa­rade next week to com­mem­o­rate the 70th an­niver­sary of Ja­pan’s de­feat in World War II, mo­bi­liz­ing hun­dreds of thou­sands of Bei­jing’s cit­i­zens in prepa­ra­tion.

‘Very much mis­guided’

As re­cently as 2011, China’s gross do­mes­tic prod­uct (GDP) ex­panded 10.6 per­cent but that slowed steadily to 7.4 per­cent last year.

A sur­pris­ingly up­beat 7.0 per­cent GDP growth fig­ure an­nounced last month for the April-June quar­ter — match­ing the gov­ern­ment’s of­fi­cial an­nual tar­get — came de­spite sev­eral dis­ap­point­ing in­di­ca­tors ear­lier.

A sur­prise yuan de­val­u­a­tion ear­lier this month — which should boost ex­porters — led to fears the sit­u­a­tion was worse than por­trayed, ex­ac­er­bated when a man­u­fac­tur­ing sur­vey last week reached its low­est for more than six years.

The gov­ern­ment has taken con­sis­tent pol­icy steps to make sure the on­go­ing slow­down does not get out of hand, such as cut­ting bench­mark in­ter­est rates four times since Novem­ber and also re­duc­ing the amount of funds banks must keep on hand in a bid to in­crease lend­ing.

Brian Jack­son, Bei­jing-based economist with IHS Eco­nom­ics, stressed that the gov­ern­ment has had some pol­icy suc­cess, cit­ing an over­all sta­ble con­struc­tion sec­tor and re­bound­ing hous­ing de­mand.

“Most other parts of the econ­omy have in­deed slowed in the past year, but only grad­u­ally,” he wrote.

“In any case, we don’t view China’s stock mar­ket as a very good in­di­ca­tor of the over­all health of the econ­omy, given it re­mains so triv­ial in its link­ages to the rest of the econ­omy.”

But Liu Li-Gang, ANZ’s chief China economist, called the gov­ern­ment’s re­luc­tance to take more ag­gres­sive steps “very strange,” em­pha­siz­ing con­fi­dence was de­clin­ing.

The gov­ern­ment’s will­ing­ness to de­ploy bil­lions of yuan to de­fend the stock mar­ket while re­strict­ing spend­ing on un­der­ly­ing fun­da­men­tals, was “very much mis­guided,” he said.

“The cur­rent pol­icy is be­ing car­ried out by a bunch of in­ex­pe­ri­enced peo­ple, which has caused this mess. They would rather pile all this money into the vir­tual econ­omy in­stead of the real econ­omy,” he added.

“So peo­ple’s faith in China’s econ­omy is lower and lower, which will cause very neg­a­tive feed­back, pres­sur­ing global mar­kets and then fur­ther weigh­ing on China’s.”

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