After Friday’s Politburo meeting it seems that the perception that there has been a shift in policy-making is nearly unanimous. The meeting’s focus on “stability” and “continuity” included as a major objective the maintenance of “sustained, stable, and relatively fast growth.”And although “preventing prices from rising too fast” continues to be described as an important policy goal, gone are the references to preventing overheating and maintaining the tightening bias in monetary policy.
In that context it is not as surprising it otherwise might have seemed, I guess, that the PBoC is now calling for growth while ignoring references to tight monetary policy. According to a report from today’s Xinhua:
China's central bank said Sunday it would seek to create conditions for "relatively fast" economic growth in the coming months, despite the ongoing threat of inflation."We will use various monetary policy tools to create good conditions for stable, relatively fast growth," the bank said on its website.
The central bank's statement came after recent figures suggested growth in China's economy -- the world's fourth-largest -- is beginning to slow.
This has caused quite a lot of heated discussion in the financial markets. One of my students who works in a large city bank in one of the rich southern provinces told me by email this morning that "everyone in my bank is discussing the new statement by the PBoC – and their reluctance to use the phrase tightening policy for the first time. This is close to Wen Jiaobao's voice. "
According to him, however, the PBoC is unwilling to lose their hawkish reputation too quickly, so the consensus in his bank is that they will continue to talk tough, and maybe even make a very ugly face soon, but will in fact actually take actions to loosen credit and liquidity conditions.
It’s not that the monetary alarmists have given up the fight. Today’s People’s Daily has an article citing a speech, also made on Sunday, by the chief economist of the National Bureau of Statistics, generally considered to be on the side of the monetary hawks. The article starts out:
The Chinese economy was likely to maintain stable and fast growth this year, despite being beset with problems and uncertainties, as fundamentals of the economy remained unchanged, Yao Jingyuan, National Bureau of Statistics chief economist, said on Sunday.
The article then goes on to say “He believed the most outstanding challenges China faced were an unbalanced economic structure and big inflationary pressure.”It seems to me that one of the arguments made by those wanting to maintain a tight monetary policy is to insist that the economy is not slowing as precipitously as the growth camp fear.
Meanwhile the stock market seems to have decided that monetary tightening is out, and easy credit, at least easier credit, is back in. The SSE Composite was up 1.33% today, closing at 2903, led largely by banks and real estate developers.Most analysts are saying that the new policy-making consensus reduces the chances, at least in the very near term, for more interest rate or minimum reserve requirement hikes, and that this is good for bank profitability and very good for the property developers.The latter have recently found it very difficult to get financing except from the informal banking sector.
Are we going to see 18%+ inflation in China, just like the late 70's and early 80's ?
By Bill - 7/28/2008 12:08 AM
I think we are going to see inflation exceed 10% (and in fact if the CP was correctly constructed I thik we would have already seen it). Beyond that it depends on policy responses.
Michael Pettis is a professor at Peking University's Guanghua School of Management, where he specializes in Chinese financial markets. He has also taught, from 2002 to 2004, at Tsinghua University’s School of Economics and Management and, from 1992 to 2001, at Columbia University’s Graduate School of Business. He is a member of the board of directors of ABC-CA Fund Management Co., a Sino-French joint venture based in Shanghai.
Pettis has worked on Wall Street in trading, capital markets, and corporate finance since 1987, when he joined the Sovereign Debt trading team at Manufacturers Hanover (now JP Morgan). Most recently, from 1996 to 2001, Pettis worked at Bear Stearns, where he was Managing Director-Principal heading the Latin American Capital Markets and the Liability Management groups. He has also worked as a partner in a merchant banking boutique that specialized in securitizing Latin American assets and at Credit Suisse First Boston, where he headed the emerging markets trading team. Besides trading and capital markets, Pettis has been involved in sovereign advisory work, including for the Mexican government on the privatization of its banking system, the Republic of Macedonia on the restructuring of its international bank debt, and the South Korean Ministry of Finance on the restructuring of the country’s commercial bank debt.
Pettis is a member of the Institute of Latin American Studies Advisory Board at Columbia University as well as the Dean’s Advisory Board at the School of Public and International Affairs. He is the author of several books, including The Volatility Machine: Emerging Economies and the Threat of Financial Collapse (Oxford University Press, 2001). He received an MBA in Finance in 1984 and an MIA in Development Economics in 1981, both from Columbia University.
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from today’s Xinhua:
Comments (3) for "PBoC falls into line"
January, 2008