2014-09-17

Xinhua: Still Not Time For Rate Cuts; Don't Quench Thirst With Poison

Update: Earlier today the People's Daily ran this editorial——Rate Cuts Not The Opposite of Reform.

Investors would have an easy time if they would only listen to the words spoken by Li Keqiang (Premier Li calls for courage, wisdom in upgrading economy and Xi Jinping. I'll grant that the leadership is saying two different things to some extent, so you have to pick one. Do you believe the 7.5% growth target, but not all the other calls for reform and rebalancing which necessitate a slower GDP growth rate? Put yourself in the position as a Chinese leader. Do you really care what foreign investors think, or are you more worried about the party elite? What is more plausible, that all of the talk of reform, rebalancing and anti-corruption, which scares the pants off many elites, is all for show; or the 7.5% growth target is a BS number to keep the elites going along with reform until the exits are all closed and they can't oppose the reform agenda?

Everything is being laid out in the open. There is going to be enough "stimulus" to (hopefully) keep the economy from slowing to near zero or lower. There isn't going to be any stimulus that sacrifices long-term growth for a short-term sugar high. Reform is going to accelerate in 2015. The government is setting the policies and moving the pieces into place, but next year is when SOE reform, financial reform, interest rate liberalization moves off the pages and into reality. The plan is reform and long-term restructuring, not stimulus. It is starting to look as if it is too late to stop the reforms anyway, but one it gets into 2015, the ball is going to start rolling downhill.

For those who still don't get the message, there is Xinhua to remind them.

The headlines says it's not time for rate cuts and there are plenty of other methods to fine tune the economy.

This one sentence sums up the opinion on major monetary or fiscal stimulus. Chen Yulu, economics professor from Renmin University: strong stimulus......is tantamount to quenching thirst with poison.

Update: ZeroHedge has a summary and analyst responses. Wall Street Responds To China's QE: Beijing Finds Lack Of Faith Disturbing

新华网再谈降息:还没到时候 预调微调手段有的是


Xinhua Beijing September 17 (Reporter Liu Zheng) With the August financial and macroeconomic data released, the outside world to pay more attention to China's monetary policy.

The central bank monetary policy committee member, president of Renmin University of China Chen Yulu believes that the current economic downturn, although pressure, but it is the most promising structural adjustment time. To adhere to a prudent monetary policy, while fine-tuning, directional force, and support economic weaknesses and structural adjustment of focus.

Monetary policy should bite hold on

August China's industrial and investment growth have emerged a more significant decline. In this context, whether it should continue to adhere to prudent monetary policy?

"China is now the most promising economic structural adjustment, when is the last chance as the core of modern economy, monetary policy must be with the good, teeth hold on, maintain the overall stability of the monetary and financial environment, engage in strong stimulation." Chen rain bluntly, if anyone, is not enough, strong stimulation can only solve the problem temporarily, is tantamount to quenching thirst with poison.

Under the new economic normal monetary policy go from here? First, depending on the accurate grasp of the new normalcy. Chen Yulu believes that the new normal core is the "three overlay", will meet four challenges: First, the economic downturn pressure, the second is the new driving force for economic endogenous growth has not yet appeared, the third is part of the industry overcapacity problem is serious, four is to consider the social, the overall constraint transition resources and environment.

"Monetary policy to adapt to the new economic normality is a big issue, still exploring, but still relatively good overall grasp." Chen Yulu said.

For the outside world will not care about the problem of rate cuts, Chen Yulu said in response, there is no time to make this determination. If the rate cut is a strong signal to adhere to the new normal monetary policy fine-tuning you will doubt, confusion. "Failure to do so will not be able to do so, to point the other way, directional RRR, open market operations. Allow generalized money supply (M2) remained at around 13%, means of fine-tuning of some. "

Directed force to promote structural adjustment

Under the new normal monetary policy not to engage in strong stimulation, but also take the initiative as.

"Monetary policy and the real economy to maintain positive interaction in the total amount of steady growth, focusing on two aspects: on the one hand to promote the industries with excess capacity adjustments, on the other hand directed to support the weak links and key areas." Chen Yulu said.

Chen Yulu view, industry overcapacity situation divided into three categories: First, the market is still too fragmented, but you can make industry consolidation through mergers and acquisitions, to give financial support to these acquisitions; Second, the market is indeed a serious over-supply at the same time, serious environmental pollution, to collapse, delisting, the formation of non-performing loans to allow verification; Third, domestic overcapacity but other countries need encouragement to go out, foreign currency loans, bond financing to strengthen their support.

There also have structural adjustment retreat into. Chen Yulu believes that the need for designated areas of support, registration and bond financing to fall through orientation, etc., to support its development, such as the "three rural" areas, small and micro enterprises in shantytowns and technological upgrading of enterprises, etc. Next to continue directional force, fixed support.

"Monetary policy is still dominated in total control, but also to explore innovative structural adjustment." Chen Yulu bluntly.

Financial reform efforts will be larger next year

China's current economic difficulties faced by some macro-control policies can be resolved, and some will have to be resolved through reform.

"Financial reforms have special requirements, we talk about risk prevention, the main thing is to consider the potential risks in the financial sector to get timely digestion or inhibition can imagine, in 2015 began efforts to promote financial reform will be relatively large." Chen Yulu said.


Let the market play a decisive role in the allocation of resources, the financial sector must realize the interest rate market. Chen Yulu, the domestic financial market is indeed to establish a unified market, the core is the price determined by the market.

Many people worry that the market will push interest rates higher real interest rates. Chen Yulu pointed out that although the short-term interest rate market interest rates may rise in the process, but as long as the economy basically healthy body, there will be an inflection point , return. Interest rate market, but also let people share the fruits of development needs reform, reform is inevitable orientation.

Chen Yulu that now interest rates steady advance market-oriented reforms, in fact, leaving the deposit rate as well as the upper limit. Liberalization of deposit rates have to wait for the introduction of a deposit insurance system, hoping to launch before the end of this year, the deposit insurance system. "If the deposit insurance system can be launched before the end of the year, the interest rate reform is likely to have a substantial advance in 2015.

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