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05-03-2014, 10:35 PM
If indeed it is true, then we will have another liquidity tap flowing to offset tapering by US...
China eyes easy credit to spur growth
MARK MAGNIER THE WALL STREET JOURNAL MARCH 06, 2014 12:00AM
CHINA'S leaders kept the growth target for their economy unchanged but signalled that they were more concerned than ever about reaching it, giving themselves the option of letting credit flow freely to keep from falling short.
The suggestion of more lending to buoy growth -- despite repeated recent efforts to rein in debt -- is the latest sign of government unease that a slipping economy could trigger higher unemployment and corporate failures, aggravating already high social tensions.
For years, China kept a growth target of about 7.5 per cent but actually grew far faster; in the past two years the economy has barely cleared that figure, and many economists have said it would have a tougher time meeting the goal this year as its economy matures and global demand for its exports comes under pressure. That is a troubling trend for the rest of the world, which has increasingly depended on China to fuel the global economy.
At home, the Chinese regime has felt pressures that can be exacerbated by a slowing growth rate. Last week the government set up a committee to improve cyber security and police the internet, upsetting some middle-class Chinese who have taken to social media. Last weekend, assailants rampaged through a provincial railway station, killing 29 in what the government says was the work of separatists from the northwestern Xinjiang region.
In opening the annual session of the national legislature Wednesday in the Great Hall of the People, the leaders and the more than 2900 delegates stood for a moment of silence to honour the victims of Saturday's knife attack.
In his report to the National People's Congress, Premier Li Keqiang said government spending was being increased by more than 9 per cent, with a push to build more public housing, and the overall fiscal deficit was projected to rise more than 12 per cent.
Mr Li called for a "balanced" monetary policy, in a change from the "prudent" monetary policy used last year. The slight wording change allows the government to loosen credit, a move that economists have said would likely give a short-term boost but worsen credit problems plaguing local governments and the shadow-banking market.
Economists are bracing for trust and bond defaults this year and greater market volatility given the number of debt-plagued companies close to the edge. One-third of the outstanding 4.6 trillion yuan ($836 billion) trust loans are due to mature this year, which many struggling firms rely on for capital.
Many construction and property companies are also heavily dependent on the country's debt-laden local governments for building projects.
Nearly half the 17.9 trillion yuan debt held by local governments in mid-2013 -- up 67 per cent from the last audit in 2010, according to a National Audit Office report -- comes due this year. Standard Chartered economist Stephen Green said there was a better than 50 per cent chance that a local government bond would default this year.
China's Ministry of Finance said military spending this year would rise more than 12 per cent -- the largest percentage rise in defence spending since 2011, continuing an almost unbroken string of large increases for two decades.
Maintaining growth will become increasingly challenging. The World Bank projects a decline in China's average annual growth rate from 8.6 per cent during the 2011-15 period to 5 per cent by 2026-30. That is assuming China suffers no major shock and carries out reforms to give economic winners such as technology companies, entrepreneurs and service industries, rather than low-end mines and bloated state factories with good party connections, preferential access to capital and equipment.
Sitting in his Shanghai apartment, 27-year-old Ma Yiding said he had seen many venture capitalists, bankers and brokers through his website marketing job become increasingly cautious as debt mounted and more property projects sat empty. "China's economy is not so healthy," he said. "Markets should be able to solve their own problems, which carries some promise. But I'm somewhat pessimistic over how much we can really change."
Mr Ma saw too much focus on growth and not enough on consumer and quality-of-life issues, including air pollution. "The internet has all sorts of products for baby care," he said. "But it's really hard to find a (children's) park."
During its 2002-07 heyday following accession to the World Trade Organisation, China saw exports grow 29 per cent annually on average, helping fuel global growth of 3.4 per cent, among the highest six-year average on record.
Among the biggest foreign beneficiaries of China's stellar rise have been commodity producers, many of whom are now struggling.
On Indonesia's Bangka and Belitung islands, white-sand beaches and swaying palms mask trouble in paradise. The area produces most of Indonesia's tin -- BHP Billiton was partly named after Belitung -- and China's reduced appetite is giving mine owner Johan Murod headaches. He has watched company revenues decline by 25 per cent since last year. In a bid to survive, he has cut business travel at his company, Babelionia Internasional, and used mining tracts to breed cattle, farm fish and grow water spinach.
The pain isn't limited to tin; China's demand for local palm oil and pepper is also declining.
"If you come here, you'll see banks, coffee stalls and shops are all quiet now because so many people are out of work or watching their incomes drop," Mr Murod said. "The impact of the China slowdown is very significant."
Domestically, China faces a crossroads as its investment-led growth model flags.
The challenge ahead, economists said, includes easing land, labour and capital controls -- a cultural shift for a government with a penchant for control.
Even as older Chinese save and scrimp, many in China's younger generations are tired of delayed gratification.
"I see spending as an investment in myself," said Huang Bingni, a 38-year-old beauty products saleswoman in the eastern city of Maanshan, who uses much of her income on cosmetics and nice clothes. "I want to have a good life now."
Chinese companies that focus on quantity over quality and ignore customer service faced a tough future, said Wang Jinshi, owner of Beaumarchais, a producer of custom-made shoes in the southern city of Foshan.
"This kind of company can't survive," he said. "Quality is really important now."
China eyes easy credit to spur growth
MARK MAGNIER THE WALL STREET JOURNAL MARCH 06, 2014 12:00AM
CHINA'S leaders kept the growth target for their economy unchanged but signalled that they were more concerned than ever about reaching it, giving themselves the option of letting credit flow freely to keep from falling short.
The suggestion of more lending to buoy growth -- despite repeated recent efforts to rein in debt -- is the latest sign of government unease that a slipping economy could trigger higher unemployment and corporate failures, aggravating already high social tensions.
For years, China kept a growth target of about 7.5 per cent but actually grew far faster; in the past two years the economy has barely cleared that figure, and many economists have said it would have a tougher time meeting the goal this year as its economy matures and global demand for its exports comes under pressure. That is a troubling trend for the rest of the world, which has increasingly depended on China to fuel the global economy.
At home, the Chinese regime has felt pressures that can be exacerbated by a slowing growth rate. Last week the government set up a committee to improve cyber security and police the internet, upsetting some middle-class Chinese who have taken to social media. Last weekend, assailants rampaged through a provincial railway station, killing 29 in what the government says was the work of separatists from the northwestern Xinjiang region.
In opening the annual session of the national legislature Wednesday in the Great Hall of the People, the leaders and the more than 2900 delegates stood for a moment of silence to honour the victims of Saturday's knife attack.
In his report to the National People's Congress, Premier Li Keqiang said government spending was being increased by more than 9 per cent, with a push to build more public housing, and the overall fiscal deficit was projected to rise more than 12 per cent.
Mr Li called for a "balanced" monetary policy, in a change from the "prudent" monetary policy used last year. The slight wording change allows the government to loosen credit, a move that economists have said would likely give a short-term boost but worsen credit problems plaguing local governments and the shadow-banking market.
Economists are bracing for trust and bond defaults this year and greater market volatility given the number of debt-plagued companies close to the edge. One-third of the outstanding 4.6 trillion yuan ($836 billion) trust loans are due to mature this year, which many struggling firms rely on for capital.
Many construction and property companies are also heavily dependent on the country's debt-laden local governments for building projects.
Nearly half the 17.9 trillion yuan debt held by local governments in mid-2013 -- up 67 per cent from the last audit in 2010, according to a National Audit Office report -- comes due this year. Standard Chartered economist Stephen Green said there was a better than 50 per cent chance that a local government bond would default this year.
China's Ministry of Finance said military spending this year would rise more than 12 per cent -- the largest percentage rise in defence spending since 2011, continuing an almost unbroken string of large increases for two decades.
Maintaining growth will become increasingly challenging. The World Bank projects a decline in China's average annual growth rate from 8.6 per cent during the 2011-15 period to 5 per cent by 2026-30. That is assuming China suffers no major shock and carries out reforms to give economic winners such as technology companies, entrepreneurs and service industries, rather than low-end mines and bloated state factories with good party connections, preferential access to capital and equipment.
Sitting in his Shanghai apartment, 27-year-old Ma Yiding said he had seen many venture capitalists, bankers and brokers through his website marketing job become increasingly cautious as debt mounted and more property projects sat empty. "China's economy is not so healthy," he said. "Markets should be able to solve their own problems, which carries some promise. But I'm somewhat pessimistic over how much we can really change."
Mr Ma saw too much focus on growth and not enough on consumer and quality-of-life issues, including air pollution. "The internet has all sorts of products for baby care," he said. "But it's really hard to find a (children's) park."
During its 2002-07 heyday following accession to the World Trade Organisation, China saw exports grow 29 per cent annually on average, helping fuel global growth of 3.4 per cent, among the highest six-year average on record.
Among the biggest foreign beneficiaries of China's stellar rise have been commodity producers, many of whom are now struggling.
On Indonesia's Bangka and Belitung islands, white-sand beaches and swaying palms mask trouble in paradise. The area produces most of Indonesia's tin -- BHP Billiton was partly named after Belitung -- and China's reduced appetite is giving mine owner Johan Murod headaches. He has watched company revenues decline by 25 per cent since last year. In a bid to survive, he has cut business travel at his company, Babelionia Internasional, and used mining tracts to breed cattle, farm fish and grow water spinach.
The pain isn't limited to tin; China's demand for local palm oil and pepper is also declining.
"If you come here, you'll see banks, coffee stalls and shops are all quiet now because so many people are out of work or watching their incomes drop," Mr Murod said. "The impact of the China slowdown is very significant."
Domestically, China faces a crossroads as its investment-led growth model flags.
The challenge ahead, economists said, includes easing land, labour and capital controls -- a cultural shift for a government with a penchant for control.
Even as older Chinese save and scrimp, many in China's younger generations are tired of delayed gratification.
"I see spending as an investment in myself," said Huang Bingni, a 38-year-old beauty products saleswoman in the eastern city of Maanshan, who uses much of her income on cosmetics and nice clothes. "I want to have a good life now."
Chinese companies that focus on quantity over quality and ignore customer service faced a tough future, said Wang Jinshi, owner of Beaumarchais, a producer of custom-made shoes in the southern city of Foshan.
"This kind of company can't survive," he said. "Quality is really important now."