Procurement News Notice |
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| PNN | 3064 |
| Work Detail | Chinese private-sector investment has essentially crawled to a halt in recent weeks, yet robust solutions have taken a back seat to buck-passing among top officials. A powerful government body believes that a looser monetary policy is in order while the central bank is pushing back with calls for a bigger fiscal stimulus. China's reserve requirement ratio is still historically high compared with other major countries, says a report released Friday by the National Development and Reform Commission -- the policy apparatus that approves investments. That analysis was a shot across the bow of the People's Bank of China, which directs commercial banks to park a percentage of their deposits at the central bank. A lower reserve requirement would generate more cash on hand for banks, allowing greater leeway for corporate loans. Fundraising costs for small to midsize enterprises are still high, the NDRC reported. So the central bank should cut reserve requirements, providing more headroom for lenders and thereby helping to trim interest rates on corporate funds procurement in order to jump-start private investment, the argument goes. Around the same time that the commission published its report, PBOC Vice Governor Yi Gang delivered an address saying the central bank is maintaining sufficient liquidity in the banking system. He also indicated that the PBOC will step up injections to the interbank money market through two-week reverse repos. The move also shows the bank is choosing to take that route in bolstering liquidity as opposed to lowering reserve requirements. This bureaucratic back-and-forth comes as private investments grew only 2.1% during the January-July period, as compared with 10.1% throughout the whole of 2015. Investment in June and July apparently contracted on the year. This is despite the numerous meetings and policy proposals for the issue overseen by Chinese Premier Li Keqiang. Meanwhile, "the NDRC and PBOC are squabbling, with each telling the other to do their jobs right," said a former bureaucrat who is now an economist. This is the second time this month the two sides have aired their differences. The NDRC released an article on the morning of Aug. 3 that said both the policy rate and the reserve requirement ratio will be lowered. Those parts were deleted in the afternoon the same day, an act the market interpreted as the commission putting pressure on the central bank to ease its monetary policy. The PBOC fired back with an Aug. 5 report that said cutting reserve requirements would lead to excessive liquidity in the market, put downward pressure on the yuan and deflate foreign exchange reserves. In July, a PBOC official said aggressive government stimulus is needed to maximize the benefits of monetary policy. It is extremely rare for the two agencies charged with steering China's macroeconomic policies to be this publicly divided. Yet there are no signs that the two sides will bridge the gap. The Communist Party is due to make numerous changes at the top during the next twice-a-decade congress in fall 2017. A failure to stabilize the economy would likely affect personnel decisions. The People's Daily, the Communist Party's mouthpiece, published an interview with an unnamed "authoritative" source in May in which the person warned against pork-barrel government spending and bubbles caused by excessive liquidity. The interview is rumored to reflect the opinions of someone in President Xi Jinping's inner circle. If that were indeed the case, it would explain why both the PBOC and the NDRC would be hesitant in pulling their respective stimulus levers. But a sustained policy stalemate will do nothing to cure the ills afflicting private investment. |
| Country | China , Eastern Asia |
| Industry | Financial Services |
| Entry Date | 03 Sep 2016 |
| Source | http://asia.nikkei.com/Politics-Economy/Policy-Politics/Internal-friction-resurfaces-over-China-s-economic-policy |
