Li Keqiang’s Bottom Line

Jun 30, 2013 Zhang Jun

Last year, Chinese GDP growth reached a two-decade low, and no upturn is in sight. But, as Premier Li Keqiang seems to recognize, this downward trend could actually be beneficial, spurring the structural reforms that China needs to achieve its longer-term goal of more balanced and stable GDP growth.

SHANGHAI – Everyone is talking about China’s economic slowdown. Last year, Chinese GDP growth reached a 13-year low, and no upturn is in sight. But, as Premier Li Keqiang seems to recognize, this trend could actually be beneficial, spurring the structural reforms that China needs to achieve its longer-term goal of more balanced and stable GDP growth.

Recent assessments have offered a downbeat picture of the world’s second-largest economy. In its latest Global Economic Prospects report, the World Bank cut its 2013 economic growth forecast for China from 8.4% to 7.7%. Moreover, recently released central-bank data show that Chinese banks increased their lending by only about ¥667 billion ($108 billion) in May – a roughly ¥125 billion decline from the same period last year.

But simply lending more would not improve the situation. Given that outstanding loans already amount to nearly double China’s GDP – a result of the country’s massive stimulus since 2008 – new loans are largely being used to pay off old debts, rather than for investment in the real economy. Thus, the more relevant concern is that the balance of outstanding loans has not risen.

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Pingfan Hong Jul 7, 2013

"Slow growth is good for economic structural change", "high investment delays structural reforms", I don't understand how economists could reach such conclusions.

A slowdown in growth may be a sign for the needs of economic change, but a slow growth is neither necessary nor sufficient condition for a successful economic structural change.

Moreover, structural changes in an economy would require more, not less, investment in the new leading sectors.

The problem is not the high investment rate, but where the investment goes.
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Jonathan Lam Jul 6, 2013

Gamesmith94134: Li Keqiang’s Bottom Line
After reading Mr. Roubini’s “De-risking revisited” I realize the slow growth in the EMN, and it even happened in China. “While risk aversion and volatility were falling and asset prices were rising, economic growth remained sluggish throughout the world. Now the global economy’s chickens may be coming home to roost.” The concept of perpetual growth would end if the QE ceased. Perhaps, many would have shocked by the China Commercial Bank’s announcement on the 90days products at 5.5%; or the 6 trillion shadow banking off the balance sheet may turn off the credit and loan industry. "prominent risks are not only in the shadow-banking area but also in local government financing vehicles, and we do need to be on high alert," Vice-Minister of Finance Zhu Guangyao said in Beijing on Friday, Zhu said.
Perhaps, the present danger of the fixed assets and ETF management may face with half full or half empty based how each economy is reacting to the availability of cash flow or each central bank may limit itself in. In the process, the equitable verses the pyramid scheme will consequently fall on both inflation and deflation, it depend on the sources of financial and local developments. For the outlook on the Li’s ten points view on the finance and his micro economical stand, it contrasts with the ECB’s 0.5% interest rate unchanged; I felt the polarization at the coming chicken comes home to roost. At the marginalization on the 7-9% growth, many insurer and pensioner like us would have a tougher choice which home is coming to roost; but, given the beneficial another chance to breathe, I would certain the prospectus on the growth will lead its way.
I would agree with Mr. Zhang’s view on the downscaling pricing on Real estate and earnings on industrial valued added from the macro economical standpoint; even though the outflow on the cash will definitely affect the deflation or disinflation as to the pricing on the real estate and more local governments and the business sector have to find new sources of growth. Perhaps, I am looking forward on the micro-economical view that Mr. Li can hold on his ten points to reform the financial system. Apparently, it would be more political pressures too when the ECB and FED may sustain their paths to restructure.
If Mr. Li’s bottom line is between 7-9% in growth, I think I am getting the relief for my pension invested in China; and I think IMF or World Bank should weight on the sovereignty’s right or look on the micro-economical standpoint that all interest rate operates marketwise would be best on the reality to its reform, instead of being the piper who lead to the rift. Stand fast….
May the Buddha bless you?
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