Things that stop Chinese government from aggressive policy easing13 August, 2012, 19:11. Posted by Zarathustra
As mentioned earlier, the People’s Bank of China (PBOC) did not cut RRR.
It came at no surprise to us, although it might have disappointed some who were hoping for more easing really soon (although as we stressed in our guide to China’s monetary policy, cutting RRR does not necessarily means easing).
This is mainly because, in our view, thereal estate market has been warming up much quicker than the government would like to see. Home buyers appear to be queuing up to buy after prices fall as they fear that home prices will rebound strongly, particularly after the rate cuts.
Thus the government is not going to relax its grip on the real estate market. On the contrary, the government may tighten again after local governments fine-tuned (translation: eased) the real estate policies since late last year and early this year.
After the State Council’s inspection of the implementation of the real estate market curbs, and after the real estate market showing signs of life (despite speculators in Wenzhou screaming HELP), there is a growing consensus that perhaps another round of property market curbs is coming. One of the possibility is property tax, as the Economic Information suggests that property tax will be expanded beyond Shanghai and Chongqing. Tax specialists from 30+ provincial and local governments in China are now attending a 4-month training course to develop property tax scheme, possibly for a roll out at a national level.
On top of that, there is a growing consensus that inflation could have bottomed in a short-term as food prices could surge in China, following the rise of global agricultural commodities prices. Although we still believe that the impact on headline inflation will be very modest, we suspect that the perceived room for further easing will be narrowed if inflation ticks higher in the coming months.
As a result, we have suggested that despite the fact that the economy is probably in a worse shape now than it was in 2008/09, we are much less optimistic regarding the prospect of aggressive easing, at least for the time being.
Indeed, one economist for the state’s economic planner thinks that the situation is not bad enough for more easing, while a former PBOC advisor thinks that PBOC has already gone too far with respect to monetary easing according to the Wall Street Journal, confirming our views:
"China’s current economic situation is not that bad," said Zhu Baoliang, chief economist at the State Information Center under the National Development and Reform Commission, China’s top economic planner. There is no need for the central bank to take "overly intensive" moves, especially with a possible rebound in inflation from August, he said.
In fact, said, Zhou Qiren, an academic economist and former adviser to the PBOC, monetary loosening may already have gone too far.
"The market needs time to adjust, and structural reforms take time," he said at a forum Saturday. "The economy should be allowed to slide, or else a lot of problems won’t be eradicated."
The policy dilemma is going to make policymakers hesitant in stimulating the economy more aggressively, and that does not bode well for economic growth in the short-term.