China Feeding the Fire for Stimulus?
05/25/2012 4:13 pm EST
Creatively timed ’leaks’ might be the first step to convince the markets that the Chinese government needs to push through another massive stimulus plan, writes MoneyShow’s Jim Jubak, also of Jubak’s Picks.
When I get economic news from China, I find myself asking not just what does the data mean, but why has the Chinese government decided to tell me this now?
And that’s exactly my reaction to news yesterday that new bank lending in April and May has dropped to a degree that makes it unlikely that banks will meet the government’s target of 8.5 trillion yuan ($1.24 trillion) in new loans for 2012.
At the recent pace, the total is more likely to be 7 trillion yuan for the year. And lending may be about 550 billion yuan in May, down from 682 billion yuan in April, the official Securities Daily reported today.
The drop in new bank loans would be just one more piece of negative economic news from China recently. For example, today the HSBC/Markit Economists purchasing managers index fell to a preliminary 48.7 in May, from a final 49.3 in April. Anything below 50 indicates that the economy is contracting. (This index has been consistently more negative than the official government purchasing managers index, so what’s important here is the decline in the trend.)
But what interests me just as much as the numbers pointing to a slowdown in China’s economic growth is the timing of this “news.” All the reports on the May bank loan total have come from unnamed officials at China’s big banks or their regulators. Typically, sources like these don’t “leak” unless the leak has been authorized somewhere up the line.
I think it’s reasonable to assume that this news was leaked for a purpose. So, what purpose?
I think the Chinese government is building a public case for some kind of economic stimulus package that goes beyond the steps that the People’s Bank has already taken (such as reducing the bank reserve ratio by 0.5 percentage points.)
I don’t think the package will be as big as the post-Lehman crisis effort, but I think we’re looking at a set of measures big enough to possibly face criticism that China has overreacted, that it is courting renewed inflation, that it is about to reinflate a dangerous real-estate bubble, etc. (For more on those fears and why a new package is likely to be smaller than the original, see my recent post.)
What might be in such a package? Certainly more reductions to the bank reserve ratio. Eased credit restrictions—there’s already been an announcement that the deeply indebted railway ministry will be allowed to borrow more.
Then there will be increased dividend payouts from state-owned companies that trade on China’s Shanghai A-share market. (Which considering that some of these companies aren’t profitable right now means that increased dividend payouts would essentially be a form of cash payment from the government to shareholders.)
Also, more subsidies to consumers, like the recent subsidy for the purchase of washing machines and other white goods. And finally another, but smaller, round of infrastructure projects. On May 23 the State Council promised to speed up existing railway, environmental protection, and rural projects, for example.
The capstone to such a stimulus structure would be an interest-rate cut by the People’s Bank.
The more “leaks” there are that make such a package seem like a necessity, the less criticism the government would face from overseas investors and economists.