Positive signs in the Chinese economy
- By Guan Qingyou
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E-mail China.org.cn, April 13, 2014
5. The conditions mature and macroeconomic policies remain consistent
There is indeed a "time mismatch" between macro policies and detailed reforms. If detailed reform cannot support growth in the short term, and macro policy cannot repeat old stimulus measures, a slowdown is all but escapable.
This is why rolling out another stimulus package is not a pressing matter, but speeding up reforms in specific sectors is, especially reforms of state-owned enterprises, financial reform and loosening the control over the tertiary industry.
With regard to higher efficiency and better employment, the present 7 percent growth is not necessarily inferior to the past 8 percent.
Premier Li Keqiang made it clear at the NPC press conference that the "growth target is around 7.5 percent," which means the government can accept a slightly different figure.
There are also signs that the government has more tolerance for downward pressure, because as long as the growth can "ensure relatively adequate employment, and increases in income," there will be no need for a stimulus package.
6. Liquidity likely to tight up in Q2
The loose monetary situation in Q1 of this year may be unlikely to continue in Q2. The expectation for the yuan's appreciation is dimming, and along with narrowing interest spreads this will reduce the liquidity in the market during Q2.
The finance market in China had reduced demand in the first two months of the year, during which non-standard assets in financial institutions shrank, boosting the loans market. But throughout the year, non-standard assets will grow to a certain extent.
The liquidity shortage seen in Q2 of last year will not repeat in Q2 of this year, both due to shrinking demand from the real economy, and more prudence in risk profiteering in financial institutions.
7. A market that prevents risk and looks for opportunities
The stock market will see polarized growth, while the bond market will also be polarized, but will in general outperform stock market.
The housing market will not be further restricted by tightening policies. Across the country, the upgrading of 4.7 million shantytowns will cost around 1 trillion yuan. The government can only provide limited funds, meaning the rest will come from financing from the public.
The yuan will depreciate slightly. But a fluctuating currency does not mean the yuan's exchange rate will be entirely decided by the market, because the central bank can still maintain its strong influence by setting up a central parity rate.
The author is the deputy dean and a chief macro researcher of the Minsheng Securities Institute.
This article was translated by Chen Boyuan. Its original unabridged version was published in Chinese.
Opinion articles reflect the author's own opinions, not necessarily those of China.org.cn.
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