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Stimulus still possible long term despite PBOC chief's comments

  • Staff Reporter
  • 2014-05-14
  • 11:42 (GMT+8)
Zhou Xiaochuan during a press conference in Beijing, March 11. (Photo/CNS)

Zhou Xiaochuan during a press conference in Beijing, March 11. (Photo/CNS)

At odds with market expectation, Zhou Xiaochuan, head of the People's Bank of China, has implied the central bank may not cut the required reserve rate for bank deposits anytime soon, given his comments last weekend that in keeping with the policy of maintaining stability advocated by the State Council there will be no dramatic stimulus measures.

"The central bank mainly carries out reverse cyclical adjustment, mostly on a minor scale," remarked Zhou at the Tsinghua PBCSF Global Finance Forum in the Wudaokou district of Beijing.

The financial news website of Hong Kong-based Phoenix New Media stated that Zhou's comments appear to rule out a massive cut on the required reserve rate for deposits, in the short term, especially in view of the need for stability in policy, at a time when macroeconomic adjustment policy is still at an early stage. The statement, however, doesn't rule out the possibility of a rate cut in several months or a gradual cut, according to the website.

The conclusion that can be drawn from Zhou's statement, according to the website, is that policy tools available to the central bank are limited and that the adoption of quantitative measures will hinge on change in long term figures. Therefore should economic figures continue to weaken, comprehensive cuts on required reserve rates cannot be ruled out.

The web portal predicts that the central bank may make a decision on adjustments in its macroeconomic policy around the end of June, when the figures for the first two quarters of the year are available. The macroeconomic figures already available have not been satisfactory, as social financing stood at 1.6 trillion yuan (US$257.1 billion) in April, 209.1 billion yuan (US$33.6 billion) less than the previous year, and at 7.2 trillion yuan (US$1.2 trillion) for the Jan-April period, a decrease of 746.4 billion yuan (US$119.9 billion). In April, new loans dropped extensively, including trust loans which decreased by 152.5 billion yuan (US$24.5 billion) and loans based on negotiable instruments which dropped by 143.1 billion yuan (US$23 billion), mainly due to intensified supervision of non-standard loans. Loans on the capital market, however, saw large increases.

Other indicators also show that the economy is weakening. In the first four months of the year, exports dropped by 4.8% year-on-year and new export orders in April stood at 49.1%, below the dividing mark between expansion and contraction, 1 percentage point lower than March. Export transaction value at the just concluded Canton Fair declined by 12.64% year-on-year, an ominous sign for export performance in the third quarter. The May figures don't look promising, as housing transactions, as well as realty investments and sales, may drop further.

References:

Zhou Xiaochuan 周小川

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