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ReturnChina to tweak economic policy in response to slowdown
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PublishDate：
2008-07-18 16:48:00
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The Chinese leadership is poised to loosen its control over the economy, including slowing the pace of yuan appreciation, in response to lobbying from industry and mounting evidence of an economic slowdown.
Sources told XFN-Asia and its sister company Market News International and that the government is not likely to abandon the "tight" monetary policy stance that it adopted in early December.
They noted that fighting inflation is still the top priority, and that too abrupt a shift would send the wrong political message.
But they noted that Beijing is likely to tweak the implementation of that policy to relieve pressure on select parts of the economy to mitigate the impact of a slowdown triggered by internal and external forces.
"There can't be any big changes to the tight monetary policy -- just a fine-tuning of the existing policy," a source close to the State Council, the government's top decision-making body, told Market News International.
A source at the state planning agency, the National Development and Reform Commission, echoed that assessment, adding that some easing of curbs on bank credit were expected to be made.
A statement is anticipated following a two-day meeting of the State Council which is being held this week ahead of the release of second quarter economic data on Thursday. Although such statements are often lightly worded and short on detail, this one could carry further hints about a shift in the government's thinking.
The first hint of a move to fine-tune came in last week's official China Securities Journal with a report that the government will raise the rebate on value-added tax paid by textile manufacturers to 13 pct from the current 11 pct and that on clothing to 15 pct from the current 11 pct. Both sectors have been hit hard by the slowing global growth and the stronger yuan exchange rate.
The pace of yuan appreciation is also up for debate. The currency has risen by 7.2 pct since the start of this year -- a 13.1 pct trading-day adjusted annualized rate -- outpacing the 6.9 pct gain recorded over the whole of 2007.
But the quickened pace has not been without controversy. Several key government agencies have been mounting opposition within the State Council to the speed of the yuan's rise this year, warning that China's terms of trade are being dangerously eroded, threatening thousands of low-margin export manufacturers and their employees.
The Ministry of Commerce has been pushing for a slowing of the appreciation, fearing a growing burden on exporters.
A Ministry of Commerce official told XFN-Asia that the ministry is not alone, and that other arms of the government have no doubt been making similar recommendations.
Another official with the National Development and Reform Commission, who also asked that his name not be published, said that -- so far -- the People's Bank of China has had a relatively free hand within the State Council to push for faster appreciation.
"State Council leaders don't understand the yuan issue too much -- the newcomers have been remaining silent because they're too scared to take responsibility and no-one wants to speak out," the state planning official said, referring to new faces in the cabinet body following a reshuffle earlier this year.
"The State Council is letting the central bank do whatever it wants."
But the government slammed on the brakes of appreciation in April in the face of mounting opposition within the State Council from long-standing foes of aggressive reform, led by the Ministry of Commerce.
With the trade surplus shrinking and exporters lobbying, expectations are building that Beijing will again slow the pace of appreciation.
Several government ministries have prepared reports for submission to the State Council following a series of fact-finding trips taken around the country by senior officials earlier this month. The reports include one prepared by the Ministry of Commerce, which repeats its long-standing call for the pace of yuan appreciation to be slowed, sources said.
The planning official said that the planning agency -- whose voice is generally dominant among the government agencies within the State Council on economic issues -- is generally steering clear of the current debate about the pace of appreciation.
Any move to loosen policy would mark the culmination of a slow shift in Beijing's thinking about the economy and a response to mounting evidence that activity is slowing on the back of the combined effects of government controls and falling global demand for Chinese made or assembled goods.
There is little evidence of panic, however. Growth may be slowing sharply in the industrialized economies on the back of an ever-deepening financial crisis, but China is in good health, comparatively speaking.
The National Bureau of Statistics is expected to announce on Thursday morning that the economy expanded by 10.4 pct year-over-year during the first half of this year. That includes a 10.2 pct expansion during April-June, months that encompassed a falling trade surplus and a devastating earthquake in Sichuan which killed nearly 70,000.
Yao Jingyuan, the chief economist at the statistics bureau, has said that the economy is likely to expand by around 10 pct this year, comfortably above the average 9.7 pct annual growth rate of the last 30 years.
Headline inflation numbers also provide relief. Consumer price inflation decelerated to 7.1 pct in June, sources have told Market News International, from 7.7 pct in May and a near-12 year high of 8.7 pct in February.
That's not to say that policymakers are in the clear. Despite his upbeat outlook for China's economic performance this year, Yao added a caveat.
"China's economy is facing the most difficult and complex conditions, both domestically and globally, in the past five years," he said.
The growth of consumer prices is moderating, but largely because of increased output on the farms. Elsewhere, analysts warn of persistent inflationary pressures, as evidenced in higher global commodities prices and domestic producer prices. They also warn that billions of dollars in speculative "hot money" inflows are also stoking inflation.
Analysts are also bracing for the impact of last month's 16-18 pct increase in gasoline and diesel fuel prices to feed through into downstream prices, with some anticipating a one percentage point bump in the consumer price index.
Overshadowing all is the ongoing credit crisis in the US and its eventual impact on global growth.
Even if economic conditions do not warrant a wholesale reversal in the government's stance, analysts also said that any move to do so could also risk sending the wrong message to industry.
"If the government scaled back its tightening policy now, there'd be a strong risk that fixed-asset investment and credit growth will rebound, particularly in the property sector," said Li Ruoyu, an economist with the State Information Center, a think tank affiliated with the state planning agency.
Source:www.quamnet.com
Sources told XFN-Asia and its sister company Market News International and that the government is not likely to abandon the "tight" monetary policy stance that it adopted in early December.
They noted that fighting inflation is still the top priority, and that too abrupt a shift would send the wrong political message.
But they noted that Beijing is likely to tweak the implementation of that policy to relieve pressure on select parts of the economy to mitigate the impact of a slowdown triggered by internal and external forces.
"There can't be any big changes to the tight monetary policy -- just a fine-tuning of the existing policy," a source close to the State Council, the government's top decision-making body, told Market News International.
A source at the state planning agency, the National Development and Reform Commission, echoed that assessment, adding that some easing of curbs on bank credit were expected to be made.
A statement is anticipated following a two-day meeting of the State Council which is being held this week ahead of the release of second quarter economic data on Thursday. Although such statements are often lightly worded and short on detail, this one could carry further hints about a shift in the government's thinking.
The first hint of a move to fine-tune came in last week's official China Securities Journal with a report that the government will raise the rebate on value-added tax paid by textile manufacturers to 13 pct from the current 11 pct and that on clothing to 15 pct from the current 11 pct. Both sectors have been hit hard by the slowing global growth and the stronger yuan exchange rate.
The pace of yuan appreciation is also up for debate. The currency has risen by 7.2 pct since the start of this year -- a 13.1 pct trading-day adjusted annualized rate -- outpacing the 6.9 pct gain recorded over the whole of 2007.
But the quickened pace has not been without controversy. Several key government agencies have been mounting opposition within the State Council to the speed of the yuan's rise this year, warning that China's terms of trade are being dangerously eroded, threatening thousands of low-margin export manufacturers and their employees.
The Ministry of Commerce has been pushing for a slowing of the appreciation, fearing a growing burden on exporters.
A Ministry of Commerce official told XFN-Asia that the ministry is not alone, and that other arms of the government have no doubt been making similar recommendations.
Another official with the National Development and Reform Commission, who also asked that his name not be published, said that -- so far -- the People's Bank of China has had a relatively free hand within the State Council to push for faster appreciation.
"State Council leaders don't understand the yuan issue too much -- the newcomers have been remaining silent because they're too scared to take responsibility and no-one wants to speak out," the state planning official said, referring to new faces in the cabinet body following a reshuffle earlier this year.
"The State Council is letting the central bank do whatever it wants."
But the government slammed on the brakes of appreciation in April in the face of mounting opposition within the State Council from long-standing foes of aggressive reform, led by the Ministry of Commerce.
With the trade surplus shrinking and exporters lobbying, expectations are building that Beijing will again slow the pace of appreciation.
Several government ministries have prepared reports for submission to the State Council following a series of fact-finding trips taken around the country by senior officials earlier this month. The reports include one prepared by the Ministry of Commerce, which repeats its long-standing call for the pace of yuan appreciation to be slowed, sources said.
The planning official said that the planning agency -- whose voice is generally dominant among the government agencies within the State Council on economic issues -- is generally steering clear of the current debate about the pace of appreciation.
Any move to loosen policy would mark the culmination of a slow shift in Beijing's thinking about the economy and a response to mounting evidence that activity is slowing on the back of the combined effects of government controls and falling global demand for Chinese made or assembled goods.
There is little evidence of panic, however. Growth may be slowing sharply in the industrialized economies on the back of an ever-deepening financial crisis, but China is in good health, comparatively speaking.
The National Bureau of Statistics is expected to announce on Thursday morning that the economy expanded by 10.4 pct year-over-year during the first half of this year. That includes a 10.2 pct expansion during April-June, months that encompassed a falling trade surplus and a devastating earthquake in Sichuan which killed nearly 70,000.
Yao Jingyuan, the chief economist at the statistics bureau, has said that the economy is likely to expand by around 10 pct this year, comfortably above the average 9.7 pct annual growth rate of the last 30 years.
Headline inflation numbers also provide relief. Consumer price inflation decelerated to 7.1 pct in June, sources have told Market News International, from 7.7 pct in May and a near-12 year high of 8.7 pct in February.
That's not to say that policymakers are in the clear. Despite his upbeat outlook for China's economic performance this year, Yao added a caveat.
"China's economy is facing the most difficult and complex conditions, both domestically and globally, in the past five years," he said.
The growth of consumer prices is moderating, but largely because of increased output on the farms. Elsewhere, analysts warn of persistent inflationary pressures, as evidenced in higher global commodities prices and domestic producer prices. They also warn that billions of dollars in speculative "hot money" inflows are also stoking inflation.
Analysts are also bracing for the impact of last month's 16-18 pct increase in gasoline and diesel fuel prices to feed through into downstream prices, with some anticipating a one percentage point bump in the consumer price index.
Overshadowing all is the ongoing credit crisis in the US and its eventual impact on global growth.
Even if economic conditions do not warrant a wholesale reversal in the government's stance, analysts also said that any move to do so could also risk sending the wrong message to industry.
"If the government scaled back its tightening policy now, there'd be a strong risk that fixed-asset investment and credit growth will rebound, particularly in the property sector," said Li Ruoyu, an economist with the State Information Center, a think tank affiliated with the state planning agency.
Source:www.quamnet.com
