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Recovery on the horizon as policy shows patience
By Chris Leung |
October 22, 2012, Monday
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Print Edition
Print Edition
THE result of the China's GDP report is generally positive. The economy accelerated in the third quarter of this year by 2.2 percent quarter on quarter, up from 2.0 percent in the previous three months.
The acceleration is once again driven by fixed asset investment which advanced 20.5 percent in the first three quarters, up from 20.2 percent in the first eight months. That said, retail sales growth turned out to be 14.2 percent last month, better than consensus forecast of 13 percent.
The economy is likely has reached a cyclical bottom this quarter. A mild rebound in the fourth quarter is highly possible in the magnitude of 8 percent year on year to conclude annual growth at 7.8 percent surpassing the 7.5 percent target.
A better foundation of recovery will only be apparent in the first quarter of 2013 assuming (1) re-stocking after a period of de-investment to gradually unfold (2) some policies entailing structural changes after the political transition has completed.
The characteristics of the rebound this round is not accompanied by aggressive loosening of monetary policy and gigantic fiscal stimulus. This is very good so that price adjustment can concurrently occur with a slowing economy.
Inflation as measured by the CPI, indeed fell quite quickly to 1.9 percent last month. It is very unlikely China will cut interest rates or lower reserve requirement ratio to spur growth in the near term as they have been so patiently withholding the stimulus guns hitherto.
China has been extremely patient with the stringent control on the property market. This is an act of bravery. As I have written many times, growth can easily accelerate if they choose to relax the control on property market. But they have chosen not to. The philosophy of macroeconomic management in China has changed for the better. The market may not aware what does this mean but eventually they will.
Fiscal or monetary policies are not the tools to drive sustainable growth over the long haul. Strategic formulation of industrial policies comes to my mind first.
The need to engage the private sector more into the investment engine in order to improve productivity is another must-do.
How to do this? Give it another six months and we shall know more details of the grand plan ahead. By then, the investment theme will be more complicated to understand to be played upon because it is not simply about where the government is going to spend the money.
The challenge is to gauge does the government spend the money smartly. We are living in interesting time.
The acceleration is once again driven by fixed asset investment which advanced 20.5 percent in the first three quarters, up from 20.2 percent in the first eight months. That said, retail sales growth turned out to be 14.2 percent last month, better than consensus forecast of 13 percent.
The economy is likely has reached a cyclical bottom this quarter. A mild rebound in the fourth quarter is highly possible in the magnitude of 8 percent year on year to conclude annual growth at 7.8 percent surpassing the 7.5 percent target.
A better foundation of recovery will only be apparent in the first quarter of 2013 assuming (1) re-stocking after a period of de-investment to gradually unfold (2) some policies entailing structural changes after the political transition has completed.
The characteristics of the rebound this round is not accompanied by aggressive loosening of monetary policy and gigantic fiscal stimulus. This is very good so that price adjustment can concurrently occur with a slowing economy.
Inflation as measured by the CPI, indeed fell quite quickly to 1.9 percent last month. It is very unlikely China will cut interest rates or lower reserve requirement ratio to spur growth in the near term as they have been so patiently withholding the stimulus guns hitherto.
China has been extremely patient with the stringent control on the property market. This is an act of bravery. As I have written many times, growth can easily accelerate if they choose to relax the control on property market. But they have chosen not to. The philosophy of macroeconomic management in China has changed for the better. The market may not aware what does this mean but eventually they will.
Fiscal or monetary policies are not the tools to drive sustainable growth over the long haul. Strategic formulation of industrial policies comes to my mind first.
The need to engage the private sector more into the investment engine in order to improve productivity is another must-do.
How to do this? Give it another six months and we shall know more details of the grand plan ahead. By then, the investment theme will be more complicated to understand to be played upon because it is not simply about where the government is going to spend the money.
The challenge is to gauge does the government spend the money smartly. We are living in interesting time.
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