12/03/2020
- In response to the 2008 global financial crisis, China pumped a 4 trillion yuan (US$575 billion) into its economy but it led to a mountain of local government debt
- Various early indicators suggest China’s economy will slow in the first quarter of 2020, with some suggestions it will suffer a first contraction since 1976
President Xi Jinping said China must accelerate construction of “new infrastructures such as 5G networks and data centres” on top of speeding up “key projects and major infrastructure construction” in response to the economic impact caused by the coronavirus outbreak. Photo: Xinhua
China should not try to bolster its coronavirus-hit economy by again resorting to a massive debt-fuelled fiscal and monetary stimulus programme, according to a group of government advisers.
Various early indicators suggest China’s economy will slow in the first quarter of 2020, with some even suggesting it will suffer a first contraction since the end of the Cultural Revolution in 1976.
This raises the question if China will miss its key 2020 growth target, with voices on both sides of the debate discussing what stimulus policies are needed to offset the deep impact of the coronavirus.
China is already leaning towards some additional stimulus, with Premier Li Keqiang ordering the central bank pump additional money into the banking system, while President Xi Jinping has announced the need for more spending on “new infrastructure”.
Are there other ways out for China except stimulus policies?Liu Shijin
“Are there other ways out for China except stimulus policies?” rhetorically asked Liu Shijin, who previously worked closely with Vice-Premier Liu He, the top economic aide to Xi, at the Development Research Centre, the think tank attached to the State Council.
“If it really works, why can’t Japan and the United States reach a 5 per cent growth rate?”
It is believed China will need to achieve an average 5.6 per cent growth in 2020 to achieve its goal of doubling the size of its economy from 2010, which is a key goal for
of creating a “comprehensively well-off” society.
China’s economy grew by
6.1 per cent in 2019, and while it was the slowest in 29 years, the US economy only grew 2.3 per cent, with Japan’s estimated to grow by 0.9 per cent.
What is gross domestic product (GDP)?
Liu Shijin, who is now a deputy head of the China Development Research Foundation and a policy adviser to the People’s Bank of China, argued that a growth rate averaging 5 per cent over the next decade is sufficient for China to meet its development goals.
Growth in 2020, though, may well be below 5 per cent given that the impact of the coronavirus is “unprecedented” and larger than both severe acute respiratory syndrome (Sars) in 2003 and the 2008 global financial crisis.
Xi said earlier this month that China must accelerate construction of “new infrastructures such as
5G networks and data centres” on top of speeding up “key projects and major infrastructure construction already included in state plans” like additional high-speed railway lines in response to the economic impact caused by the coronavirus outbreak.
But as this will mainly rely on corporate and private investment, Liu Shijin feels it will be too small to engineer a major rebound in the growth rate.
When encountering challenges, we should first push forward new reform measures to unleash growth potential. Now is the right timeLiu Shijin
“It’s a different thing compared to real [government-led] economic stabilisation,” Liu Shijin told a web seminar hosted by Peking University’s National School of Development on Wednesday.
“When encountering challenges, we should first push forward new reform measures to unleash growth potential. Now is the right time.”
Instead, to support longer-term growth, China should put its efforts into the development of its “city clusters”, which could lead to higher spending on housing construction, urban infrastructure and manufacturing, added Liu Shijin, which would increase the growth rate by up to an additional percentage point over the next decade.
China has so far refrained from the massive stimulus programme it adopted in 2008 in response to the global financial crisis, which included a 4 trillion yuan (US$575 billion) plan that pumped cheap money into government-backed projects but also created a mountain of local government debt.
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Zhang Bin, a senior researcher at the Chinese Academy of Social Sciences, said infrastructure construction will remain an important part of any plan to support growth.
“If the funding [for the 4 trillion yuan stimulus] had come solely from treasury bonds or local government bonds [rather than risky lending], there wouldn’t be so much shadow banking, unmanageable credit expansion, high leverage, implicit liabilities or financial risks,” he said.
“If the balance sheets of corporations, households and local governments can’t be repaired, it might lead to insufficient demand and a decline into a vicious [downward] cycle.”
Zhang, like Liu Shijin, is a key member of the China Finance 40 Forum, a group of state economists who advocate more structural reforms to support the Chinese economy. In particular, Zhang has set sights on reforms that would boost consumption, which accounted for 58 per cent of Chinese growth last year.
“The biggest weak link of the Chinese economy is that 200 to 300 million
migrant workers can’t [legally] settle in big cities,” he said. “Only if they are able to settle in the city that China can be called a real well-off society. It will also boost the economy, lift demand for manufactured goods and unleashed consumption potential.”
Currently, most large Chinese cities only provide social services including health care and schooling to residents who have a legal permit, or hukou. Most migrant workers who come to the big cities for jobs are blocked from obtaining a hukou, meaning they have to travel back to their rural hometowns to have access to basic social services, so often do not settle in their adopted city.
In response to this idea, Xu Yuan, a professor at Peking University, called for the government to build 10 million affordable housing units annually to accommodate new urban citizens, which would address short-term economic pain and serve the nation’s long-term development.
China will release its annual growth target as well as other key goals, including the fiscal deficit ratio and local bond quota, at the National People’s Congress, although the annual parliamentary convention, previously scheduled for March 5, has been postponed, with a new date yet to be announced.
Source: SCMP
Posted in 1976, 2020 growth target, 5G networks, affordable housing units, China, China Development Research Foundation, China Finance 40 Forum, Chinese Academy of Social Sciences, Construction, coronavirus, data centres, Development Research Centre, Economic, economic slowdown, Health care, hukou, Japan, legal permit, massive stimulus, migrant workers, National People’s Congress, National School of Development, new infrastructures, overcome, Peking University, Peking University’s, People’s Bank of China (PBOC), President Xi Jinping, schooling, Severe Acute Respiratory Syndrome (SARS), slowdown, social services, State Council, Uncategorized, United States, unprecedented, urban citizens, Xinhua |
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29/02/2020
- Purchasing managers’ indexes for both manufacturing and service sectors drop to all-time lows
- Steep falls raise questions over extent of damage epidemic has caused to China’s economy and how long it will take the country to recover
Many Chinese factories have faced a labour shortage as migrants have been unable to return to work because of the coronavirus outbreak. Photo: AFP
The damage caused by the
coronavirus outbreak to China’s US$14 trillion economy could be much worse than Beijing hoped, as official measures for the country’s factory and service activity indicated on Saturday, threatening President Xi Jinping’s vision for 2020 and underscoring his urgent appeal to get production back to normal.
Monthly economic indicators for February sank to all-time lows as the coronavirus halted China’s manufacturing machine and froze activity in the service sector – from retailing to recycling – painting a bleak picture of the world’s second-biggest economy and challenging Beijing’s repeated assurance that the impact would be manageable and short-lived.
Covid-19, the disease caused by the coronavirus – was first reported in Wuhan in December. Since then it has spread to more than 50 countries and more than 85,000 people have been infected. The outbreak has disrupted travel and cargo shipments, and caused stock markets to slump.
China’s official February purchasing managers’ indexes (PMI) for both manufacturing and services, released by the National Bureau of Statistics on Saturday, confirmed fears that China’s economy was in bad shape and fanned speculation that it may even contract in the first quarter.
Larry Hu, chief China economist at Macquarie Capital in Hong Kong, said in a note that Beijing might report negative growth for “the first time since the Cultural Revolution”.
The manufacturing PMI, which measures factory activity, dropped to 35.7 in February – below the previous all-time low of 38.8 set in November 2008 during the global financial crisis – from 50 in January when the impact of the epidemic was not apparent.
A reading below 50 indicates a contraction in activity.
The February PMI figures confirmed fears that China’s economy was in bad shape. Photo: AFP
All of the sub-indexes of the PMI pointed to the difficult situation facing Chinese factories. Output plummeted, new orders vanished, exports and imports stopped, and logistics were badly disrupted. Input prices, which reflects the costs factories must pay, was the only sub-index that remained above 50.
The non-manufacturing PMI – a gauge of sentiment in the services and construction sectors – also dropped, to 29.6 from 54.1 in January. This was also the lowest on record, beating the previous low of 49.7 in November 2011, according to the China Federation of Logistics and Purchasing, which produces the index with the National Bureau of Statistics.
The declines in the February reflect the difficulties businesses are having in bringing production back online due to shortages of labour as well as difficulties receiving supplies or shipping goods to market because of transport restrictions enacted to contain the spread of the virus.
An extended slump would put upwards pressure on unemployment, especially among small, private sector service firms. Beijing, which worries that rising joblessness could cause social unrest, has called on local governments to remove unnecessary restrictions to get businesses back to work.
The employment sub-index in the manufacturing PMI fell to 31.8 in February.
“It is not because factories have stopped hiring migrant workers, it is because the flow of migrant workers to factories has been blocked,” said Hua Changchun, an analyst at brokerage Guotai Junan Securities. “There’s no point talking about resuming production if workers can’t return to their jobs.”
Zhang Qiqun, a researcher with the Development Research Centre of State Council, said in a statement that the major economic indicators for this quarter would see “obvious drops” and China must “be prepared”.
The employment sub-index in the manufacturing PMI fell to 31.8 in February. Photo: AFP
How quickly China can dig itself out of the coronavirus hole is a matter of debate.
According to the PMI survey, about 90 per cent of medium and large-sized manufacturers are expected to resume production in March, meaning about 10 per cent will still be closed four weeks from now.
As for small firms, the industry ministry said this week that two-thirds would still be closed at the end of February.
China’s production difficulties have resulted in economic problems for nations around the world that rely on supply chains that begin or pass through the country. The global spread of the coronavirus will only exacerbate the problem.
Barclays and Nomura forecast China’s first-quarter growth at 2 per cent, while Capital Economics said it would contract in year-on-year terms.
“The sharp drop in China’s manufacturing PMI in February reinforces our view that the normalisation in economic activity will be delayed,” said Xing Zhaopeng, an economist at Australia & New Zealand Banking Group.
“There’s scant chance for a V-shaped rebound – the authorities are using targeted aids more than stimulus to stabilise the economy and that will lead to a gradual bounce.”
The National Bureau of Statistics tried to put a brave face on the data, saying there would be a substantial improvement in March.
“The resumption of work is ramping up and market confidence is steadily recovering,” said Zhao Qinghe, a senior statistician at the NBS.
“Although the novel coronavirus pneumonia epidemic has caused a larger impact on production and operations of Chinese enterprises … currently the epidemic has come under initial containment, and the negative impact on production is gradually weakening.”
Source: SCMP
Posted in Beijing, China Federation of Logistics and Purchasing, China’s economy, coronavirus, cost, COVID-19, Cultural Revolution, Development Research Centre, Hong Kong, larger, manufacturing and service sectors, national bureau of statistics, plunge, purchasing managers’ indexes (PMI), State Council, Uncategorized |
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