There are different camps in any organization, and the same is true in the sprawling central government.
The state mouthpiece People’s Daily recently published an interview with an unnamed “authoritative person” on its front page.
The anonymous official criticized the economic measures adopted in the first quarter, and this has confused businessmen and investors.
Denying someone’s stand or view completely is similar to a slap in the face. That’s why the 11,000-word article is actually “a slap in the face” for Beijing’s economic stimulus measures in the first three months of this year.
First, China’s stabilizing economic growth resulted mainly from a record jump in credit. New loans extended by Chinese banks in the first quarter amounted to 4.6 trillion yuan (US$706.9 billion), up 26 percent from a year earlier and far exceeding market expectations.
The “authoritative person” totally disagrees with this approach.
“A tree cannot grow up to the sky – high leverage will definitely lead to high risks,” the person said. “Any mishandling will lead to systemic financial risks, negative economic growth, or even the loss of household savings. That’s deadly.”
Second, government efforts to clear housing stock also contributed to economic growth in the first quarter. Both central and local governments have relaxed control over the property sector, and increased the mortgage loan ratio to encourage residents to buy homes.
The person admitted there is a housing bubble: “Houses are for living, and we should stick to that position. We have defined the policy direction for the stock market, the foreign exchange and housing markets, and let them return to their original positions and respect market rules, rather than use them simply as tools to stimulate growth.”
Third, central government officials led by Premier Li Keqiang have kept urging local governments to kick off a number of construction projects to bolster economic growth.
As a result, investment made by state-owned companies soared 22.3 percent in the first quarter from a year earlier, and infrastructure spending also jumped 19.6 percent during the period.
By contrast, private investment only increased 5.7 percent.
The person pointed out that “some new problems are revealed. Economic stabilization relies on the old method, which is investment-driven, and fiscal pressure in some areas has increased the likelihood of economic risks.”
The reduction of overcapacity and closure of “zombie” enterprises will continue, the person said. That is a difficult issue involving people and money, which means employment and debt.
Vice Premier Zhang Gaoli hinted in a conference in late March that the economy in the first quarter would make a good start. Premier Li made similar comments in early April.
By contrast, the “authoritative person” described the first-quarter economic performance as basically in line with expectations, adding that “we should not get too excited in light of some improving economic indicators”.
It’s widely known that Premier Li was in charge of various economic policies in the first quarter.
Now who has the authority to criticize his policy?
Businessmen and investors are quite confused as to who they should believe.
This article appeared in the Hong Kong Economic Journal on May 11.
Translation by Julie Zhu
[Chinese version 中文版]
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