China’s President Xi Jinping is hesitant to launch a massive stimulus package to revive the world’s second-largest economy, but markets react to an unexpected rate cut by the People’s Bank of China (PBOC). ’s harsh reaction suggests investors are pushing Mr. Xi to take more drastic steps.
The People’s Bank of China cut the one-year interest rate on the medium-term lending facility (MLF) by 0.15 percentage points to 2.5% on Thursday. The reduction was the largest since 2020. July statistics released on the same day showed sluggish growth in consumer spending, sluggish investment, and a rising unemployment rate.
The economic situation seems to be getting worse. New lending fell to a 14-year low in July, deflation is taking hold and exports are declining. A leading Chinese real estate developer is in danger of default, and a trust company affiliated with a financial conglomerate with 1 trillion yuan (approximately 20 trillion yen) of assets under management has delayed payments on some investment products, raising spillover risks. Concerns spurred on.
Some banks cut China growth forecasts after disappointing economic data. JPMorgan Chase & Co.’s team cut its GDP growth forecast for China this year to 4.8% and Barclays to 4.5%. Both are below the government’s growth target of around 5%.
President Xi Jinping
Photographer: Leah Millis/POOL/AFP/Getty Images
As a result, Mr. Xi will have to take further steps in two areas he has tried to avoid. It’s about bailing out the heavily indebted real estate sector and giving consumers more cash to spend more. On the 14th, Cai Huang, a member of the People’s Bank of China monetary policy committee, called for urgent measures to increase household consumption.
A failure to restore credibility more broadly could hurt the economy and hurt the Communist Party leadership. In China last year, a series of home loan repayment boycotts and unusual protests by residents against Mr. Xi’s zero-corona policy followed.
Chinese officials remain sensitive to the economic scenario, telling analysts not to discuss deflation and restricting access to key data. China said on Wednesday it would review its methods of researching rising youth unemployment, suspending publication in the meantime. Concerns about transparency increased.
China’s Recovery Loses More Steam
Industrial production, retail sales growth were softer than expected in July
Source: National Bureau of Statistics
Senior Fellow, Lee Kuan Yew School of Public Policy, National University of SingaporeDrew Thompson“If the economy slows down, the risk of chaos rises dramatically. The Communist Party should be more defensive,” he said. He is a former U.S. Department of Defense employee with experience in doing business in China.
The predicament China faces is bad news for the world. U.S. Treasury Secretary Janet Yellen said on Thursday that China’s economic woes were a “risk factor” for the United States. Declining imports of key commodities will threaten producing countries such as Australia and Brazil, while lower demand for electronics will hit export-dependent economies such as South Korea and Taiwan.
Some economists were encouraged by the PBOC’s latest move, while others were not. But they seem to agree that the authorities still have more work to do, both monetary and fiscal.
“Today’s PBOC rate cut sets the stage for an easing of liquidity conditions, which could eventually lead to a larger fiscal stimulus,” said Louise Lu, lead economist at Oxford Economics. I am encouraged,” he said.
Economists including Xing Zhao-peng and Yang Yu-tei of Australia and New Zealand Bank (ANZ) said the central bank may need to cut the one-year MLF rate to 1.2%. The terminal rate suggests another 1.3 percentage point cut.
The bank’s economists said the rate cut could “buy time for structural reforms and cushion shocks” such as industrial sophistication, urbanization and greater deleveraging. “The slowdown in China is more structural than cyclical,” he said.
Examining the predicament facing the Chinese economy and its impact on the global economy
Source: Bloomberg
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Original title:Xi Faces More Tough Choices After Surprise China Rate Cut (1)(excerpt)
2023-08-16 03:03:05
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