Chinese authorities are facing pressure to back up their reassuring rhetoric on the economy with more substantive action.
(Bloomberg) — Chinese authorities are facing pressure to back up their reassuring rhetoric on the economy with more substantive action.
Shares in China are headed for their third straight week of losses, the yuan is trading near an eight-month low and angst in the nation’s credit market is growing. While Premier Li Qiang pledged on Thursday to “spare no time” in implementing targeted stimulus, he offered none of the specifics that investors have been clamoring for.
During a meeting with economists, Li said the government will introduce a package of “targeted, comprehensive and well-coordinated” measures to stabilize growth and employment and prevent risks “in a timely manner.” A readout of the event was published by the official Xinhua News Agency.
Expectations the government will announce economic support have been building in recent weeks as the recovery loses steam. The property market is weak, youth employment is at record highs, and household and business confidence remains sluggish.
The central bank cut a key policy interest rate last month for the first time in nearly a year, signaling a shift to looser monetary policy going forward. But the rate was trimmed by only 10 basis points, and additional measures have been marginal, such as moves to extend tax incentives for people to buy electric cars. Economists have been warning that any stimulus measures will likely be limited in scope given China’s high debt burden.
“Policies are still being formed, but there’s unlikely to be any big stimulus,” said Bruce Pang, chief economist at Jones Lang Lasalle Inc. He added that the government needs to strike a balance between stabilizing growth in the short term and avoiding incurring any long-term structural risks.
At the meeting with economists, Li said the country was “at a critical period of economic recovery and industrial upgrading.” Those remarks suggested authorities are keen to stay the course charted at an economic meeting among top leaders in April, Pang said.
Stocks in China and Hong Kong fell Friday amid broad weakness in Asia, which was also fueled by strong US jobs data that underscored expectations for continued monetary policy tightening by the Federal Reserve.
A gauge of Chinese shares listed in the financial hub lost 1.6% as of 11:22 a.m. local time, taking the decline so far this year to 7.6%. The onshore CSI 300 Index was down 0.6%, with year-to-date retreat extended to 1.3%. The offshore yuan was little changed at 7.2548 per dollar, set for the first weekly gains in three.
Still, not all traders are convinced that authorities in Beijing will be pressured by the market slump.
One trader, who asked not to be identified because they aren’t authorized to speak publicly, said Chinese policy makers appear to perceive that markets will respond favorably to rhetoric about stimulus even if there’s no follow up with concrete actions.
Despite growing calls for stimulus, Premier Li on Thursday signaled an intent to strengthen confidence in the economy’s fundamentals in the long term, urging officials to “maintain strategic focus,” according to the Xinhua readout.
He also underscored an official commitment to address the pain felt by private and foreign firms, which have seen their profits plunge and market access narrow in recent years amid regulatory crackdowns and rising US-China tensions. A “regular communication mechanism” will be created with the sector, he said. Earlier in the week, the head of the nation’s top economic planning agency met with representatives from five private firms to talk about business conditions.
Despite efforts this year by the government to attract more foreign firms, they have become more reluctant to invest in China, with new actually utilized investment falling almost 6% in the first five months of the year compared to the same period last year. The comments by President Xi Jinping on Friday that the government needs to continuously come up with new measures to attract foreign investment may indicate that the authorities are becoming more concerned about that decline.
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Several of the economists who attended the meeting with Li are known for their research on fiscal policy and local government debt, while others focused on financial markets, industrial economics and urbanization.
One of the attendees was Zhao Wei, chief economist at Sinolink Securities Co. He wrote in a Tuesday research report that the Chinese economy is entering a “post-property era” where growth is becoming less depended on the real estate sector. Authorities need to prevent secondary risks to banks and local governments in the short term, and promote new industries including equipment manufacturing and producer services, Zhao wrote.
The Communist Party’s 24-member Politburo will have a chance to discuss stimulus later this month when it is expected to gather for a key economic meeting. The body’s July meeting is typically when it charts economic policy for the rest of the year.
–With assistance from Zhu Lin, Ishika Mookerjee, Wenjin Lv, Yujing Liu, Rebecca Choong Wilkins, Stanley James and James Mayger.
(Updated with comments from President Xi on foreign investment.)
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