MONTREAL - Chinese Prime Minister Wen
Jiabao has been saying to his counterparts at the
Group of 20 meeting under way in Los Cabos, on the
southernmost tip of Mexico's Baja California, that
they must provide a "signal of confidence" to
global markets. Translation: they should not count
on his own country to implement a growth bailout
like it did in 2008.
As China's vice
finance minister Zhu Guangyao put it in the run-up
to the meeting, quoted by Reuters, China "has
faith" in a "strong and prosperous euro zone" and
"believes the EU has the capacity and wisdom to
overcome the sovereign debt crisis".
A
communique is expected to be published when the
meeting ends on Tuesday evening local time
(Wednesday morning in Asia). However, the leaders'
"sherpas" were still negotiating the wording as
their bosses were in the air to the meeting, and
important points are being deferred for
negotiation among the
leaders themselves
during the two days of the meeting itself.
Yet as Zhu's statement makes clear, the
stimulus that the central authorities in Beijing
are already drawing up for implementation will be
targeted at China's own current economic
performance profile.
It will be
intentionally tailored to the domestic situation
rather than designed so as to have a systemic
impact on the international financial crisis as a
whole. Any palliative effects on the travails of
foreign economies will not be the result of a
deliberate and strategic plan thought out in
advance.
Nor will such measures be of the
same magnitude as four years ago. China does not
have the margin of maneuver that it did then. The
country's downturn was originally expected to
bottom in the first quarter of this year; the hope
now is that it will bottom in the second.
Yet the World Bank survey of global
economic prospects published this month referred
to a "more rapid than expected slowdown [already
occurring] in China" and averred that, despite the
greater likelihood of a soft landing, nevertheless
"a [still] more rapid-than-expected slowing is
possible."
The deputy head of a government
research institute in Beijing, Zheng Xinli, at the
China Center for International Economic Exchanges,
has even been quoted by Reuters as warning that
economic growth in the April-June period "could
fall below 7%".
The fact that the original
comments appeared in the foreign-language editions
in the Chinese media is probably part of the
coordinated information policy in the run-up to
the G-20 summit. Still, Zhu Baoliang, chief
economist at State Information Center, expects a
growth rate of 7.5% in the second quarter, while
Peng Wensheng at the country's main investment
bank China International Capital Corp puts the
second-quarter number at 7.3%.
Following a
lukewarm April and a hot-and-cold May, China's
economic performance in June will be crucial.
Weakness in May did not materialize so badly as
feared. Statistics for foreign direct investment
(FDI) in China, announced by the commerce ministry
over the weekend, typify the contradictory nature
of the month's figures.
For the first five
months of 2012, FDI into China declined 1.9% from
January-May last year, to $47.1 billion; however,
the $9.2 billion figure in May was up ever so
slightly from May 2011 and was the first
year-on-year increase registered this year.
For the whole calendar year 2011, FDI into
China reached a record level of $116 billion. The
commerce ministry wants to increase that to $120
this year and each of the three years following.
Yet, as important as FDI is, it bears recalling
that the level of total exports from China is over
16 times greater.
Thus it is proposed but
not yet enacted that the China Banking Regulatory
Commission relaxes regulations on bank lending to
the real property sector (including low-cost and
small apartments) and to financial vehicles of
local governments that supposedly demonstrate a
respectable repayment record.
The former
sector is experiencing a slowdown including a
price deflation, while the latter vehicles need to
be somehow rolled over so that their due date is
pushed into the nebulous future. This policy would
be in line with the targeting of the Chinese
stimulus at the domestic market, at infrastructure
projects, and at consumer staples.
"It
will be difficult to see a significant turnaround
in economic growth absent of a rebound in credit,"
said Charlene Chu, head of the China ratings
division at Fitch, as quoted by China Daily.
Earlier this month, Chinese regulators announced
the postponement of new, tougher regulations for
capital adequacy for commercial banks until early
2013, in order to assure lenders' liquidity. This
is the second such postponement.
Thus the
CBRC will encourage banks to lend in particular to
rail and road projects, the 21st Century Business
Herald reported, adding that the only obstacle to
implementing these measures is that the State
Council must approve them.
Politically,
however, the Bo Xilai affair which saw the fall
from grace of the Chongqing party secretary, has
already complicated the supposedly smooth
transition to a new political leadership later
this year, with the old guard still disagreeing
among among themselves over the proper pace of
reform.
Dr Robert M Cutler
(http://www.robertcutler.org),
educated at the Massachusetts Institute of
Technology and The University of Michigan, has
researched and taught at universities in the
United States, Canada, France, Switzerland, and
Russia. Now senior research fellow in the
Institute of European, Russian and Eurasian
Studies, Carleton University, Canada, he also
consults privately in a variety of fields.
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