Arab Today, arab today china prefers rate cuts to stimulus plan
Last Updated : GMT 12:35:32
Arab Today, arab today
Arab Today, arab today

China prefers rate cuts to stimulus plan

Arab Today, arab today

Arab Today, arab today China prefers rate cuts to stimulus plan

Beijing- Arabstoday

Beijing China is more likely to implement economic reform, cut interest rates and reduce bank reserve ratios to stimulate growth, rather than launch an expensive new stimulus plan, current and former officials said. A steeper-than-expected growth slowdown in the world’s second-biggest economy galvanised policymakers last week into cutting interest rates for the first time since the depths of the 2008/09 global crisis, and further easing is expected. Two more interest rate cuts and three more reserve ratio (RRR) cuts were possible before the end of the year, said Cao Wenlian, the former deputy director of the finance department at the National Development and Reform Commission. China does not need another stimulus package like the huge four trillion yuan ($628 billion) spending binge in 2008/09, which super-charged growth but left local governments saddled with debt, he told a conference.Instead, recently announced “fine-tuning” policies are enough to ensure growth in an economy that is already bottoming out this quarter, said Cao, who is now deputy secretary general of the China Centre for International Economic Exchange (CCIEE), a government think tank. Former Chinese officials and members of government-backed think-tanks often play an advisory role on current policies, and are often briefed on decisions or internal policy debates. CCIEE is considered one of the top think-tanks in the capital. Cao’s view was echoed by He Keng, deputy head of the finance and economics committee at the National People’s Congress Standing Committee, China’s rubber-stamp parliament. “The second quarter will be the hardest period and data will turn better in the third and fourth quarter with full-year growth no less than eight per cent,” He told the conference, adding that risks in the property market, high local government debt and rampant underground lending were more dangerous to the economy than the current short-term slowdown. Analysts forecast in a Reuters benchmark poll in May that China would deliver second-quarter economic growth of 7.9 per cent. They forecast full-year growth of 8.2 per cent. Weaker-than-expected economic numbers, which showed May retail sales rose at their weakest pace since February 2011 and fixed asset investment growth in the first five months at the lowest in nearly a decade, have prompted some analysts to cut their growth outlook for 2012. An influential government adviser said in remarks published on Wednesday that annual GDP growth could drop below seven per cent in the second quarter, the most pessimistic forecast of any government or private-sector economist. JP Morgan has cut its forecast on full-year economic growth to 7.7 per cent from eight per cent while Deutsche Bank has trimmed its 2012 outlook to 7.9 per cent from 8.2 per cent. Many analysts expect economic activity to pick up steadily in the coming months as policy easing and the government’s speedy approval of investment projects gain traction. JP Morgan expects the central bank to cut benchmark interest rates by another 25 basis points in the third quarter, along with two RRR cuts - each at 50 bps. “Even though the central government still says it will maintain prudent monetary policy, we do believe monetary policy is beginning to shift towards an accommodative stance,” Jing Ulrich, chairman of global markets China at JP Morgan, said. But few analysts believe Beijing will loosen its curbs on the property sector soon, despite the strong lobbying by local government officials and property developers. “We don’t expect a sharp reversal in the housing (policy). At the local level, however, there will be some incremental loosening in the restrictions,” Ulrich said. A pick-up in housing sales in some major Chinese cities has raised suspicion that local officials are trying to revive the property sector with hidden subsidies and other incentives. China risks a rebound in home prices two years from now if new home constructions, which have fallen in the past three months, kept declining and eventually led to short supply, said Fan Jianping, a senior researcher from the State Information Centre, another top government think-tank. In the meantime, while curbing speculation through existing tightening policies, China should cut land prices and lower lending rates to encourage construction of homes for ordinary residents, Fan said. Beijing could announce reforms meant to put more income in the hands of households in the second half, after a parliamentary standing committee meeting later this month, He Keng said. China\'s rubber-stamp legislature only meets in full once a year, but standing committees have a greater role in setting policy. China\'s leaders, galvanised by poor economic data in April and May, announced a raft of reforms meant to tap private investment for infrastructure projects and allow more flexibility in the banking system and currency trading. from gulfnews.com

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