Home » Opinion » Opinion Columns
Adrenalin stimulus won't fix the problem
By Wan Lixin |
July 12, 2012, Thursday
|
Print Edition
Print Edition
THE National Bureau of Statistics said this week that the Consumer Price Index rose 2.2 percent from a year earlier last month.
This inflation rate, perceived by policy makers and economists as "low," provokes clamors for stimulation.
When this rate is characterized as 29-month low, there is fear of economic slowdown, and the mandate of stabilizing growth.
Economists are a species of people who can make a lot out of simple numbers, but sometimes fail to see the obvious and the commonplace.
It pains me to think that CPI has been allowed to gallop at more than 2.2 percent for 29 consecutive months, and is still rising.
There is obviously a gap of perception between inflation as felt by housewives and that hinted by professional number crunchers.
CPI is based on a sampling of prices of 262 commodities and services in eight categories, including food, tobacco, communication, clothing, entertainment and so on.
In one sense, this kind of measure includes too many items not central to our subsistence.
A breakdown reveals that food prices rose 3.8 percent, of which vegetables rose a stunning 12 percent.
Apparently putting too many items into the basket has the advantage of dulling the perception of price hikes in necessities.
In another sense, the index is not sufficiently inclusive in its sampling of key items.
For an average household, the most considerable outlays today occur in housing, medical care and children's education. Do the National Bureau of Statistics know how many Chinese wage earners are also mortgage slaves?
The soaring prices of these items in recent decade have made indelible contributions to our GDP, but fail to be properly represented in our CPI.
Excluding these vital statistics trivializes our CPI.
But a comparatively lower CPI does serve a number of purposes.
As growth stabilization becomes the new mandate, such concepts as industrial restructuring or environmental protection can take the second seat.
Lobbying heats up
In less than one month, the state has already lowered the benchmark interest rates twice.
The powerful National Development and Reform Commission (NDRC) is working overtime to give the green light to proposed projects.
The Beijing-based Economic Observer reported last month that local governments are heading to Beijing in troops to lobby for projects.
Lao Jiao from Hubei Province has spent a month in Beijing, spending 8,000 yuan (US$1,256) just in taxis, and renting a two-bedroom flat near the NDRC just for the purpose of getting one project approved.
"I frequented chiefly three divisions of NDRC, where every office is overcrowded. There is hardly any chance to speak to any cadre there," Lao Jiao was quoted by the newspaper as saying.
Everybody is waiting there with ingratiating smile, though no one takes any notice of them. There is also a long line of suppliants at the entrance to the commission.
But Lao Jiao's effort paid off. He got his project.
Since a spate of "stabilizing the growth" measures were officially announced, the NDRC has stepped up its tempo in okaying proposed projects, in a move some interpret as "a new round of stimuli."
According to incomplete statistics, the commission had stamped 328 big projects in April, an increase of 155 over the same period last year.
By May 18, over 500 billion yuan (US$79 billion) worth of big projects have been proposed.
Although the state has ruled out the possibility of another round of 4 trillion yuan stimulus, one NDRC insider said the intensity of lobbying is greater than in late 2008, when the 4 trillion yuan was announced.
A recent article on caixin.com website observes that the readiness to stimulate the economy stems from a misconception about the nature of the economic downturn, which is about low efficiency in the real economy and bubbles in the finance sector.
Giving an ailing patient a shot of adrenalin can help revive him, but only for a short while.
Money supply is not the solution, for constant stimulation would only postpone the problem, not solve it.
To a considerable extent, much of the problem we see today is the result of that shot of 4 trillion in 2008, but policymakers typically have short memories.
Real estate
Given the national reliance on the real estate sector, the two-year measures to discourage property speculation are being challenged.
During the first six months of this year, 300 Chinese cities have made a mere 653 billion yuan from land sales, a 38 percent decrease than the same period last year.
More than 10 cities have already eased restrictions on home buying, chiefly to sound out the intentions of the central government.
Analysts do sense a softening of the central government stance in property control. Before April, it had been talking tough in asserting that the curbs would remain in place, but since then it has been talking about "stabilizing" the market.
Any softening would be amplified many times at the local level.
In many big cities like Beijing and Shanghai, flats are again selling like hotcakes.
There is every sign that the central government has a very low toleration of low growth, little realizing that the heady growth of the previous decade cannot and should not be sustained.
This inflation rate, perceived by policy makers and economists as "low," provokes clamors for stimulation.
When this rate is characterized as 29-month low, there is fear of economic slowdown, and the mandate of stabilizing growth.
Economists are a species of people who can make a lot out of simple numbers, but sometimes fail to see the obvious and the commonplace.
It pains me to think that CPI has been allowed to gallop at more than 2.2 percent for 29 consecutive months, and is still rising.
There is obviously a gap of perception between inflation as felt by housewives and that hinted by professional number crunchers.
CPI is based on a sampling of prices of 262 commodities and services in eight categories, including food, tobacco, communication, clothing, entertainment and so on.
In one sense, this kind of measure includes too many items not central to our subsistence.
A breakdown reveals that food prices rose 3.8 percent, of which vegetables rose a stunning 12 percent.
Apparently putting too many items into the basket has the advantage of dulling the perception of price hikes in necessities.
In another sense, the index is not sufficiently inclusive in its sampling of key items.
For an average household, the most considerable outlays today occur in housing, medical care and children's education. Do the National Bureau of Statistics know how many Chinese wage earners are also mortgage slaves?
The soaring prices of these items in recent decade have made indelible contributions to our GDP, but fail to be properly represented in our CPI.
Excluding these vital statistics trivializes our CPI.
But a comparatively lower CPI does serve a number of purposes.
As growth stabilization becomes the new mandate, such concepts as industrial restructuring or environmental protection can take the second seat.
Lobbying heats up
In less than one month, the state has already lowered the benchmark interest rates twice.
The powerful National Development and Reform Commission (NDRC) is working overtime to give the green light to proposed projects.
The Beijing-based Economic Observer reported last month that local governments are heading to Beijing in troops to lobby for projects.
Lao Jiao from Hubei Province has spent a month in Beijing, spending 8,000 yuan (US$1,256) just in taxis, and renting a two-bedroom flat near the NDRC just for the purpose of getting one project approved.
"I frequented chiefly three divisions of NDRC, where every office is overcrowded. There is hardly any chance to speak to any cadre there," Lao Jiao was quoted by the newspaper as saying.
Everybody is waiting there with ingratiating smile, though no one takes any notice of them. There is also a long line of suppliants at the entrance to the commission.
But Lao Jiao's effort paid off. He got his project.
Since a spate of "stabilizing the growth" measures were officially announced, the NDRC has stepped up its tempo in okaying proposed projects, in a move some interpret as "a new round of stimuli."
According to incomplete statistics, the commission had stamped 328 big projects in April, an increase of 155 over the same period last year.
By May 18, over 500 billion yuan (US$79 billion) worth of big projects have been proposed.
Although the state has ruled out the possibility of another round of 4 trillion yuan stimulus, one NDRC insider said the intensity of lobbying is greater than in late 2008, when the 4 trillion yuan was announced.
A recent article on caixin.com website observes that the readiness to stimulate the economy stems from a misconception about the nature of the economic downturn, which is about low efficiency in the real economy and bubbles in the finance sector.
Giving an ailing patient a shot of adrenalin can help revive him, but only for a short while.
Money supply is not the solution, for constant stimulation would only postpone the problem, not solve it.
To a considerable extent, much of the problem we see today is the result of that shot of 4 trillion in 2008, but policymakers typically have short memories.
Real estate
Given the national reliance on the real estate sector, the two-year measures to discourage property speculation are being challenged.
During the first six months of this year, 300 Chinese cities have made a mere 653 billion yuan from land sales, a 38 percent decrease than the same period last year.
More than 10 cities have already eased restrictions on home buying, chiefly to sound out the intentions of the central government.
Analysts do sense a softening of the central government stance in property control. Before April, it had been talking tough in asserting that the curbs would remain in place, but since then it has been talking about "stabilizing" the market.
Any softening would be amplified many times at the local level.
In many big cities like Beijing and Shanghai, flats are again selling like hotcakes.
There is every sign that the central government has a very low toleration of low growth, little realizing that the heady growth of the previous decade cannot and should not be sustained.
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