2014-07-18

Leadership Issues "Military Order" on Reforms

Downward pressure burdens Chinese economy
Although Chinese leaders have stressed the flexibility of the GDP growth target, an inspection group dispatched by the State Council found that attaining "reasonable" growth remains a struggle.

The group inspected government work in Hebei, Liaoning, Heilongjiang and Beijing from June 25 to July 5. It noted that slowed economic growth, particularly in Hebei and Heilongjiang, needs to be addressed.

This Chinese report says that a "military order" was given to local governments. They must guarantee completion of reforms. This order comes after the inspections, which were aimed at finding problems with provincial and local governments.

国务院立“军令状”:今年经济目标必须完成

Here is one interpretation of the leak of this "military order," by Liu Shan, which is a top headline at iFeng.

He says the information tells us that the economy isn't doing well, and without action, it will be impossible to hit the growth target. Second, macro policies have had little effect and the micro-stimulus relies of local government officials.

He goes on to criticize the micro-stimulus as being too slow, and that it will not add up. Monetary policy is not in harmony with a stimulus effort. Adding up the mini-stimulus efforts delivers an impressive number, but they're not efficient. Furthermore, counter-cyclical policies will not correct structural problems.

He also says the original growth target was unrealistic and cannot be achieved without stimulus.

第28期:国务院立“军令状”说明什么
"Military order" revealed two important messages, one of the current economic situation is not good, if not as it is impossible to complete the annual economic growth target. Second, the existing macroeconomic policy had little effect, "steady growth" rely on local government efforts.

The State Council is itself a Shuoyibuer agency, but recently a little annoying.

Xinhua News Agency on July 16th executive meeting of the State Council, this is reported, "Premier Li Keqiang on July 16 chaired a State Council executive meeting, listen to the State Council promulgated the policy measures to promote the situation and deploy inspection reports and rectification implement the plan, stressed the need to strengthen responsibility, solid work, seek practical results. "

This is the blurb Xinhua News Agency press release, points out news points. Perhaps the true meaning of these words can be understood: the local government to implement the policy of the State Council, poor, less responsible, the lack of really dry, but no results.

The actual situation is true.

The State inspection team to the problems identified, made the following generalization, "part of the policy implementation of the links, the progress is slow, some localities and departments to implement re-arrangement of the light, the presence of buck-passing phenomenon; some cadres lack of a sense of responsibility, encounter difficulties" dodging go ", do not act, do not play, lazy political lax, and some engage in selective implementation of symbolic execution."

This confirms speculation that the outside world that does not exist as a phenomenon of local cadres, has become the largest uncertainty "steady growth." Since the allocation of resources still government-led, if local officials slack, then to implement the State Council's "micro-stimulus" policies, it is difficult.

Reported that the meeting stressed this year to determine the economic objectives is a solemn commitment to the people and must ensure completion.

Achieve 7.5 percent economic growth target is "a solemn commitment to the people", so heavy tone expression, revealing the senior leadership of frustration and anger.
The media will "have to ensure the completion of" the State Council set a considered a "military order."

This "military order" revealed two important messages, one of the current economic situation is not good, if not as it is impossible to complete the annual economic growth target. Second, the existing macroeconomic policy had little effect, "steady growth" rely on local government efforts.

There such embarrassing situation, both political mischief, but also macroeconomic policy mismatch dictates. Earlier, Deputy Director of the Central Bank and Statistics Division published the opposite point of view, to reveal the lack of consensus on macroeconomic policy. Also completed economic indicators, but also engage in massive stimulus, the macroeconomic adjustment period, so the idea is not only naive, but also to tie themselves.

From the recent frequent introduction of macro-policy perspective, the total amount of the policy is broken, in order to display targeted, but a discerning eye to know, this is actually does not want to deny yourself. If we engage in a massive stimulus, walking is the old number, but the new approach "micro-stimulus" efforts are still not only is the "micro-stimulus" number of overweight. This is much like television athletes slow motion, looking very slow, in fact, a complete set of actions, artificially change the rate only.

1 +1 is not necessarily equal to 2, the decomposition of macroeconomic policies, and complete a one-time action is not the same. According to the latest statistics, the first half of the scale of social financing was 10.57 trillion yuan, the highest level for the same period in history, more than 414.6 billion yuan more than last year, more than the response to 2009 and 2010 the average level of the same period of the global financial crisis of 2.08 trillion yuan during the period . In the first half, RMB loans increased 5.74 trillion yuan, an increase of 14%, by more than 659 billion yuan. Broad money (M2) balance grew by 14.7% in March, April growth rate was 12.1%, 13.2%, 13.4%, was steadily on the rise.

That is to say, "micro-stimulus" policies strength does not come worse than a one-time "strong stimulus", but the policy efficiency is lower. Because monetary policy are generally half the time difference, and the role of monetary policy signals have also been hidden, which makes monetary policy at the same time continue to overweight, but can not play the corresponding policy effects. The current reality of the situation of the country's economic growth, it shows the effect of poor macroeconomic policies, otherwise the State would need to "establish military order."

Of course, there are the Chinese economy itself is a structural problem, perhaps below the potential growth rate of 7.5%, while the total amount of the policy as a macroeconomic policy is counter-cyclical measures only, and can not solve structural problems. So adjustment is a long-term task, the inevitable conflict with the short-term growth targets occur.

Due to the already unrealistic growth target to complete the task must rely on the stimulus, and the total dismantling of the policy approach looks fancy, but actually counterproductive. In the long term can not solve structural problems in the short term but also reduces the efficiency of policies.

The issue at hand headache, on the one hand to urge local officials and labor have to contribute, on the other hand probably have to increase the stimulus policy by releasing more intense signals to initiate market forces.

Although many credit growth, but opinions enterprise feedback is still difficult financing, financing expensive, to solve this problem, "directed" approach really as good as "quantitative" effective. Send a clear signal effective macro-control policies, or government priority.

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