Reader Nivethan pointed to a Bloomberg story, “China Says 8% Growth Within Reach Using $585 Billion Stimulus.” This may be a tad more significant than it appears (I also looked at Xinhua, but got the singular, and probably completely unfair impression that Wen’s speech to the party Congress was of the “give everyone at least a little something” variety).
What is telling about the Bloomberg piece is that it has Wen saying he can achieve an 8% growth target (necessary to keep unemployment from rising, given the number of new workers each year) using only the previously announced stimulus program. That is despite the fact that 4th quarter growth was somewhere between zero and 3% if it had been reported on the same basis as the US and other advanced economies (the official release was 6.7%). And most analysts concluded that the “stimulus” program was at least 2/3 already budgeted spending, and of the 1/3 or less new spending in the two year program, most of that took place in the second year. In other words, not very stimulative.
The markets rallied around the world yesterday on the notion that China would up its stimulus efforts (the idea that that would make much of a difference to the global economy, given the internal focus of any Chinese program, is already a bit odd). The Bloomberg piece would seem to throw a bit of cold water on that idea, but it’s being spun as a plus:
Premier Wen Jiabao said China’s 8 percent growth target for this year is within reach, indicating the government doesn’t see the need to increase a 4 trillion yuan ($585 billion) economic stimulus.
It’s “possible for us to meet this target,” Wen told delegates in his annual speech to China’s parliament in Beijing today. The nation needs to “reverse the economic slide as soon as possible.”
Wen’s prediction that China will ride out a global recession and his pledge to “significantly increase” investment helped extend a rally in Asian shares. Collapsing exports have dragged the world’s third-largest economy to its weakest growth in seven years and cost the jobs of 20 million migrant workers, adding to the risk of social unrest.
“They are keeping ammunition in reserve,” said Stephen Green, head of China research at Standard Chartered Plc in Shanghai. “Every day the world economy gets worse and they’ve probably got two years of very slow global growth to get through.”
The rules of Keynsian stimulus are that it be aggressive, early, targeted, and temporary. China’s back loaded program, and its failure to boost it in the face of serious deterioration (the trade number out of all the big exporters are mind-numbingly bad, and China also is suffering a stall in one of its other big growth engines, commercial real estate). And that’s before allowing for possible further downside due to rising protectionism.
But the markers are in the mood to rally, so news perceptions will be adjusted accordingly.
Update 2:30 AM: The Financial Times’ piece on the Wen speech is up, and it confirms my suspicions:
lobal financial markets rose on Wednesday after Chinese officials indicated Mr Wen would introduce new stimulus measures on Thursday. However, Mr Wen did not announce additional measures beyond the Rmb4000bn investment plan unveiled in November.
Moreover, he provided only a few extra details to help clarify how much of that investment will be genuine new spending that would not have taken place anyway and where the money will be allocated.