Chinese policymakers square
off as economic challenges grow
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[September 12, 2016]
By Elias Glenn
BEIJING (Reuters) - Strong comments
from China's top state planner that the economy needed more support
was most likely aimed at persuading the central bank to take bolder
For now though, the People's Bank of China (PBOC) is unlikely to be
swayed, worried cheaper credit has a greater chance of fuelling
asset bubbles and unwanted capital outflows than fresh investment.
The National Development and Reform Commission (NDRC) is one of
China's most powerful government bodies, with the authority to
approve investment and regulate prices. It is responsible for making
sure China meets its economic growth targets.
That mandate means the NDRC is sometimes at odds with the central
bank, and over the past months that has been the case in an
unusually public way.
The apparent differences point to the increasing challenges faced by
Chinese policymakers as economic growth grinds lower and a debate
being played out globally over the potency of easing monetary policy
when it is already loose.
Staffers at the NDRC and PBOC declined to comment.
While China's economy is on track to meet its 2016 target of
achieving at least 6.5 percent GDP growth, it is behind on other
goals. That prompted the NDRC to call for "arduous efforts" to make
up lost ground.
China has set a longer-term goal of achieving average growth of 6.5
percent a year through 2020 to meet the aims of its latest five-year
"It's reasonable to say there's still a lot policymakers need to do
to reach their target," said HSBC economist Julia Wang in Hong Kong.
"It's certainly not the time where they can afford to phase out any
of the stimulus."
But academics and analysts said the stimulus was unlikely to include
easing monetary policy because the risks of doing so now outweigh
the potential benefits. The PBOC also sees little reason to ease
when companies are hoarding cash rather than spending it, suggesting
cheaper credit would do little to spur fresh investment, sources
Instead, the central bank has shifted to using newer policy tools
that are more targeted and flexible, such as short and medium-term
lending facilities, to manage market liquidity.
In money market operations, the PBOC recently shifted to using
longer-tenor instruments to signal its concern about a potential
bond market bubble, analysts said.
Easing monetary policy would "dampen China's efforts to reduce
overcapacity and squeeze out asset bubbles", the official Xinhua
news agency said in an editorial.
To be sure, it is common for different government departments in any
country to have opposing opinions about policy, but in China those
disagreements are rarely aired in public.
Investors have been watching China's bureaucracy for signs of policy
dissent since May, when the People's Daily, the Communist Party's
official newspaper, quoted an "authoritative person" warning of a
crisis if the government relied too much on debt-fueled stimulus to
spur the economy.
The report sparked speculation of a rift between China's top
economic policymakers and prompted a market selloff briefly as
investors worried the easing cycle was coming to an end.
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A staff member is seen at Alibaba Group's new data centre in
Zhangbei, Hebei province, China September 11, 2016. China Daily/via
On Aug 3, the NDRC published a research report online saying China
should lower interest rates and bank reserve ratios at an
appropriate time - a rare public comment by the state group on
monetary policy. The remark was deleted in an updated report later
in the day.
The NDRC also pitted itself against the PBOC in 2010, arguing inflation would be
benign when the central bank was saying rising prices posed a threat to the
economy. The state planner later changed its rhetoric when inflation kept
"We expect the Chinese government to be very coherent, but different departments
are working from different mandates," said ANZ Greater China Chief Economist
Raymond Yeung in Hong Kong.
For the NDRC, there are some worrying signs about the economy's performance.
Fixed-asset investment in July rose at the slowest pace in 16 years and below a
2016 target flagged by NDRC head Xu Shaoshi in March. It is forecast to have
slowed again in August.
Retail sales are growing slower than the NDRC forecast and the pace of household
income and consumption, key pillars of economic rebalancing, have also ebbed
Fiscal stimulus has helped underpin the economy so far this year, but a reliance
on infrastructure spending and a property market that is now showing signs of
losing steam has stirred concerns about how to maintain longer-term growth.
GDP rose in 2015 at its slowest pace in 25 years and most economists expect it
to slow again this year, so the voices calling for the central bank to cut rates
or reserves will become louder.
"There is now rising pressure within China for the People's Bank of China to
further ease policy," Chen Long, a Beijing-based analyst with Gavekal
Dragonomics, wrote in an August note.
That could finally happen if economic expansion slows in 2017 and new growth
drivers have not picked up the slack, analysts said.
"Various arguments (against easing) will hold less weight once the cyclical
downturn in housing becomes more advanced, and growth and investment indicators
take another step down, which is likely to happen around the end of 2016 or
early 2017," Chen wrote.
Gavekal doubts China can achieve its goal of average 6.5 percent GDP growth
through 2020 and the IMF said recently the importance of growth targets should
be downplayed and made more flexible.
"This growth target, from our perspective, it's very likely to be a soft target
going forward. So I don't think there's big pressure," said ANZ's Yeung.
(Additional reporting by Kevin Yao in BEIJING and Ryan Woo in SINGAPORE: Editing
by Neil Fullick)
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