China’s think tank: we will not be that stupid to stimulate the economy31 May, 2012, 11:23. Posted by Zarathustra
Yesterday, I pointed out my suspicion that if China is ever going to be successful in stimulate its economy in hard landing, it is going to be much larger than last time, even though the consensus is looking for something smaller and nothing particularly dramatic.
For now anyway.
A Reuters’ report later yesterday quoted Xia Bin, the head of the financial institute of the State Council’s Development Research Centre said this is not quite yet a in a situation to stimulate the economy massively. Essentially, he thinks the rest of the world wants China to stimulate because they can speculate on stocks, but China won’t be that stupid to fall into the trap of foreigners, apparently:
Xia, who was a member of the central bank’s monetary policy committee until March, said a hard landing would bring a sharp rise in both banking sector risks and unemployment, posing a threat to social stability.
In contrast to the global financial crisis, China’s labor today is tight as firms struggle to fill vacancies. Non-performing bank loans are around 1.1 percent – far below international averages.
Meanwhile there is room for the central bank to cut lending rates to help deal with the risks to growth and corporate profits but excessive policy action should be avoided, Xia said.
"Americans and Europeans like it. Investors like it because they want to speculate on stocks. The whole world is hoping China will relax policy," Xia told Reuters.
"We will fall into a trap if we do. We will not be that stupid," Xia said, adding that the government should only stimulate economic growth in a "balanced and modest" way, while forging ahead with structural reforms to sustain growth over the longer term.
Managing expectation, perhaps.