As the fiscal policy row rumbles on in China, concerns are growing about the state of the economy and the aftershocks of the trade war with the United States.
Last week, Xu Zhong, the director-general of the research bureau of the People’s Bank of China, or PBOC, heavily criticized the country’s fiscal strategy as Beijing grapples with rising debt and a slowing economy.
His remarks triggered a heated debate in policy circles after he broke protocol by singling out the Ministry of Finance’s performance in the government’s ongoing war with debt.
“There is ample room for fiscal policy, but evidence shows that the policy is not being implemented actively enough,” Xu said in a speech before the text was released to Chinese media group Caixin.
“Lowering local authorities’ willingness to pay off debt, which would pass the fiscal risks to the financial sector, [are] moves [which] may lead to moral hazard … and even trigger systemic risks,” he added.
Since the Ministry of Finance is in charge of fiscal policy while the PBOC concentrates on monetary issues, his statement resonated with economists and analysts in China.
On Wednesday, the war of words continued when Liu Shangxi, the head of the Chinese Academy of Fiscal Sciences under the Ministry of Finance, stressed that fiscal policy should help steer structural changes rather than stimulating growth.
“All this puts China in a very difficult position,” the J.P. Morgan note stated. “Not only because much of the tariff and non-tariff measures are directed towards it, but the timing couldn’t have been worse.”
“The current proactive fiscal policy, which is different from the traditional expansionary policy, is not [a] direct government effort to expand demand, but indirect effort through stimulating market vitality, optimizing resource allocation and increasing quality supply,” Liu wrote in the official Economic Information Daily.
The world’s second-largest economy is starting to cool as growth in key sectors slow amid fears of an escalating trade war with the United States and Beijing’s crusade against corporate and local government debt.
Borrowing costs have spiraled as the purge continues, prompting the PBOC, or central bank, to cut reserve requirement ratios for major banks three times this year.
Liu’s comments are yet another sign that there are conflicting views at the top of President Xi Jinping’s administration when it comes to the economy.
Still, this media debate has come at a perilous time. On the same day that Liu was airing his views, analysts from J.P. Morgan posted a note saying the trade conflict with the US could not have come at a worse moment for China.
Earlier this month, President Donald Trump’s administration rolled out 25% tariffs on Chinese imports worth $34 billion. The White House then threatened to impose duties on products and goods worth another $200 billion.
“All this puts China in a very difficult position,” the J.P. Morgan note stated. “Not only because much of the tariff and non-tariff measures are directed towards it, but the timing couldn’t have been worse.
“After years of handwringing and navel-gazing, China finally began to focus in earnest on curbing credit growth – its Achilles’s heel – from around mid-2017,” the note added. “Under [these] circumstances, easing monetary conditions to support demand and allowing the currency to absorb the shock of the trade war are the right policy choices.”
It will be interesting to see if the economic wonks in Beijing agree with that synopsis.
Debate is vigorous in China on every issue and reform is continous. That is part of the reason why China has done so well and will continue to do so.
What has this got to do with the trade war? This is china’s internal fiscal and monetary matters. The debt that was mentioned is internally generated and was accrued by the SOEs. The borrowing SOEs (utilities, infrastructure, healthcare, education, etc) and the lending SOEs (Banks) all belong to the government. Private enterprises borrowings are being managed well because they know they will get no help from the government if their businesses go belly up. . Household debts are negligible.
As china’s GDP is 60-70% consumption based now, healthy household finances will continue to buttress china’s economy from the trade war. As for the SOEs debts, it is really a storm in a teacup. The government can stop this nonsense quarrelling between PBOC and the Ministry of Finance if they want to, after all the money goes out of the right pocket into the left pocket and vice-versa.
I love to see how echo chambers like this shriek themselves hoarse to the high heavens screaming their empire masters’ propaganda.
THIS FAKE TRADE WAR IS MAKING A LOT TO DO ABOUT NOTHING.THE US. MANUFACTURES NOTHING .WHAT DOES THE US. MAKE ""WEAPONS"" THATS WHAT AND MOST OF THAT IS IMPORTED. ALL CARS MADE IN THE US. GET THE COMPONENTS FROM ABROAD FROM THE METALS TO THE PLASTICS TO THE WIRING LOOMS AND EVEN COMPLETE ENGINES AND TRANSMISSION. THE U.S SURVIVES BY SELLING TO ONE ANOTHER.ALL RETAIL IS IMPORTED. ALL CLOTHES SHOES CONSUMABLES FOOD STUFFS HEALTH AND BEAUTY ARE IMPORTED. NOT TO WORRY CHINA THE U.S PUBLIC WILL MAKE THOSE TARIFFS GO AWAY. BLUSTER BY THE ORANGE MAN.
YOU ARE SADLY MISTAKEN!
The Chinese leadership and President Xi have played a bad hand with the current administration on trade———they better wake up——–the Chinese think that Donald John Trump will be a good boy and wake up from the BLUSTER———-they think they are dealing with William Jefferson Clinton,————George Walker Bush,——Barack Hussein Obama———–the three American dummy leaders——–NO, NO, NO,——-this is the PRESIDENCY of a LEADER———-Donald John Trump———–just look at the Western European Leaders——–Macron, May, and Merkel———–anyone really say they are LEADERS?? If Xi don’t wake up from his arrogance———-he will go down as a failed Chinese Leader————-Just Sayin!!
Bill clinton and George Bush were busy fighting wars away from home.
Barak Obama is utter failure in predicting Chinese rise, at the cost of the US and others.
Obama never bothered to confront the Chinese in the South China Sea, while new islands keep mushrooming. At the end of his tenure, he send a ship in the name of freedom of navigation.
All these mistakes made Chinese feeling themselves as the WORLD LEADER.
NOW PRESIDENT TRUMP SHOWED WHO THE REAL LEADER IS.
Given rising unemployment, social unrest, and a slowing economy, China’s internal debt is a concern. The CCC will augur the Chinese economic "miracle" into the ground before this is over. China is selling diesel on the Asian market, because of slowing manufacturing resulting in a decreased demand for logistics–fewer trucks on the road has resulted in less internal demand for diesel, so the PRC is selling off what is not needed.
The world debt is estimated at $297 trillion U.S. China’s internal debt is estimated at $36T-$63T U.S., mostly bad loans made to shore up unrealistic infrastructure goals in the provinces.
Xi is shoring up his hold on the Communist Central Committee and the Party and worrying less about the economy and the debt.
His saber rattling is done to keep the plebes at home focused on imaginary enemies while the economy goes to heck in a handbasket.
Meanwhile, the Silk Road malarkey is nothing more than colonialism packaged as loans for projects third world countries cannot afford. Money that may come back in the form of raw materials, but without a growing market for the manufactured end product, China still loses. Further, the use of Chinese labor in these projects is not exactly fostering good will.
China is headed for a fall, because the West is its market, and the West, primarily the E.U. is also awash in debt with failing economies and growing debt–Norway’s vaunted oil fund is leveraged at over 3X its estimated value, not a good sign of long term fiscal stability. Services are failing across Europe as the increasing burden of the welfare states continue to grow with invasion of the Muslim migrants.
The U.S. may be recovering slightly, slowly, but there is an inflationary spiral that has to be endured, because of all the money printed. That will set things back at least 5-10 years with respect to any real economic recovery.
The world is where it was in Sept., 1939. The first shot has yet to be fired.
China is becoming its own market. I don’t want to dismiss dire warnings of China’s imminent failure just because none of them have come true in the past, but none of them have. The strenuous fiscal debate going on right now in China is significant.
Simple, China is headed for its very own bubble bursting a la 2008. Easy credit, overvalued assets all come tumbling down when the economy slows. Trump knows how fragile they are. They don’t have a lot of wiggle room (think Bernanke 2008).
jejejejeje, accept the reality that China is losing and can no longer holds another tarrift.China is only second largest economy while the US is the largest economy. US holds all the cards and holds more mechanism rather than China.
1) Trump pull out from TPP – No leadership here.
2) Trump pulled out from Paris Climate Accord – No leadership here
3) Trump pulled out from JCPOA – No leadership here.
4) Trump pulled out from NAFTA – No leadership here.
5) Trump pulled out from UN Human Rights Council – No leadership here
6) Trump pulled out from UNESCO – No leadership here.
7) Trump flushing WTO down the toilet – Exemplary leadership here.
8) Trump beating up on his allies in europe and asia – Leadership here.
9) Trump trying to twist Kim Jong Un’s arms into destroying all his nuclear missiles and manufacturing facilities without giving anything in return – Leadership here.
10) Trump firing tomahawk cruise missiles in syria without UN permission killing innocent syrians – Exemplary empire leadership.
11) Trump moving the embassy to Jeruselam – Exemplary leadership.
12 ) Trump built the "Great Mexican Wall" – Leadership here
13) Trump separated mexican, honduran, puerto rican, guatemalan, Haitian, etc, kids from their parents and put them into detention camps – EXEMPLARY LEADERSHIP
THE REAL LEADER IS A PIECE OF SHIT PERSONIFIED!
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