It's not easy for a government sensitive to the social impact of inflation and speculation set off by its last investment binge in 2009-10, which priced millions of middle class Chinese out of city centre property markets. But the apparent recoil by Beijing from the pursuit of economic rebalancing that eschews short-term spending on more infrastructure capacity in favor of policies promoting services and consumer-driven growth simply highlights the urgency for more reform.
"Because consumption is still only 35 percent of GDP, the reality of that being able to drive the economy when fixed asset investment is falling and industrial production is slowing is unlikely," Jeremy Stevens, Beijing-based Chinaeconomist at Standard Bank, told Reuters.
Unlike the situation in Europe and the United States, where growth is anemic and inflation subdued, China and other emerging economies have been seeing significant inflation as robust growth and rising costs for raw materials have pushed prices up.
In China, where millions struggle to make ends meet and where food makes up a large chunk of household spending, inflation is a particularly sensitive topic. Sharp rises in the prices of consumer goods and housing last year catapulted inflation to the top of Beijing’s list of economic worries and prompted the authorities to announce a series of steps designed to reduce growth and the inflation that accompanied it. The current levels of inflation are likely to persist in coming months, analysts said Monday, citing fuel price increases and, eventually, a likely reacceleration in the overall economy.
The China economy is dominated by large, profitable, state owned enterprises, but private enterprises also play a major role in the economy. State-owned enterprises are a major source of profit and power for members of the Communist Party of China and their families and are favored by the government.
China has acquired highly sophisticated foreign production facilities and through "localization policies" also built a number of advanced engineering plants capable of manufacturing an increasing range of sophisticated equipment, includingnuclear weapons and satellites, but most of its industrial output still comes from relatively ill-equipped factories.
China's foreign trade has grown faster than its GDP for the past 25 years.[23] China's growth comes both from huge state investment in infrastructure and heavy industry and from private sectorexpansion in light industry instead of just exports.
Growth, rather than inflation, is “the main economic concern for Beijing policy makers,” Mr. Qu said. Growth has softened markedly in the past few months as the tightening measures taken by the government last year have dampened domestic activity. European debt troubles have also helped slow growth by reducing demand for Chinese-made goods.
This combination has prompted several economy-bolstering announcements by Beijing in the past few months, notably a reduction in reserve requirement ratios for banks, a step that effectively opens the door to more lending.
In 2008 thousands of private companies closed down and the government announced plans to expand the public sector to take up the slack caused by the global financial crisis. Banks are already believed to be nursing massive undeclared losses on government-directed investment projects mandated as part of the 4 trillion yuan ($635 billion) economic stimulus plan conceived in 2008 and rolled out in 2009-10.
So while China may have allowed banks to roll over loans from local government financing vehicles (LGFVs) to stop them defaulting, the more significant development is the speeding of approvals to bond issues made by firms run by local authorities. Bonds issued by urban construction and investment companies, typically the bigger and healthier LGFVs, totaled 169 billion yuan as of July 5, almost matching the 174 billion yuan they issued in all of 2011, according to data compiled by Shenzhen-based Pengyuan Credit Rating Co Ltd.
And completing part-finished reform is the only way to replace the credit-constrained, semi-shackled and state-dominated corporate environment that persists. Sources close to the central bank and financial regulators told Reuters earlier this year that authorities had readied a list of small, but significant reforms ready to be rolled out to help improve corporate sector access to capital.
No comments:
Post a Comment