Premier Li Keqiang’s State Council has declared a more proactive fiscal policy stance. These government measures, including the central bank’s policy, are sector specific, be it R&D or SMEs.
The targeted approach appears to support reforms at the micro level. The issue is whether the funds will go to the truly productive sectors, given the track record of local economic agents in regulatory arbitrage.
ANZ Research still believes the People’s Bank of China will not attempt to expand its balance sheet. The large MLF injection on July 23 was followed by a long pause in daily injections.
Another reserve requirement cut, likely in October, will still be misread as easing. A stimulus may shore up sentiment but fail to lift growth potential.
With supply-side constraints, counter-cyclical measures may risk bringing about stagflation and low investment return in the future.
The sorrow of Croatian football may last for a while. A ‘Lost Decade’ can last a lot longer.
Raymond Yeung is Chief Economist Greater China at ANZ