By John Richardson
CHINA’S government, via a very important statement on the state-run newswire Xinhua, have identified the smart people.
They are those who have already realised that China is not going to “blink”. There will be no big new economic stimulus package and the measures to stabilise growth, that were announced last week, were relatively very modest, very targeted – and, in fact, merely confirm policies that had already been announced in March.
The smart people will have picked up the radical change in tone of government statements over the last 18 months and, in response, will have already redirected the strategy of their chemicals company
If they haven’t already acted, it is not too late – but there is no more time to waste.
We have produced the Xinhua article in ful, because of its importance:
China’s economy is going to steer clear of the familiar path [of] resorting to a stimulus whenever there is a sign of a slowdown.
A “mini stimulus” theory has been widely circulated after the State Council announced a set of policies on Wednesday that included extending tax breaks for small businesses and support measures for poor urban districts.
Anticipation has been building recently for some kind of action following a string of lukewarm economic indicators, including cargo volume and electricity consumption slowing in the first two months of 2014.
It was inevitable that the world’s No. 2 economy would move forward under pressure, especially for [in] the early part of 2014.
However, any talk about an incoming stimulus package is misleading and those anticipating the kind of stimulus China unleashed following the 2008 global financial crisis are likely to be disappointed.
The sweeping measures did help China’s economy recover rapidly but also led to overcapacity, skyrocketing house prices and a credit boom, all of which the authorities are now trying to rein in.
China’s economy needs a little stimulation but not a fully fledged stimulus. The tax breaks and acceleration of railway investment and social house rebuilding will certainly inject new blood into the faltering economy, but they do not forebode any massive spending and borrowing.
China has quit the habit of resorting to the so-called “masterpiece” stimulus, which could be as addictive and damaging for a national economy as doping is for the human body.
The new measures taken by the Cabinet are nothing new and in fact they are follow-up policies from the government work report in March and the reform plan unveiled in November by the top leaders.
There is no need to panic, not least because China’s growth rates remain high compared with the recent sluggish standards of Western nations.
It is more appropriate to interpret the measures as “looking into the future while taking the current economic situation into account,” rather than a “new round of mini economic stimulus.”
The smart ones have got it. There is no sign of a monetary and fiscal policy shift. There is no hint of loosening the housing market either.
What China’s economy needs most is steady and deep reforms, which the decision-makers are determined to push even at the price of an economic slowdown, because they believe only through deep and comprehensive reforms can the Chinese economy embark on a new stable and healthy path.