Alexandre Kateb

Is China's RMB 4 Trillion Fiscal Package Losing Steam?

A few comments on Michael Pettis article and the comment by Mr. Henderson

Michael, I agree with most of what you say except the argument on inflation. I think inflation is falling in China because :
1. The lagged impact of the monetary policy tightening of H2 2007 / H1 2008
2. The cooling of the job market as companies reduce their staffing needs
3. The housing slowdown which reduces rental inflation (to be checked)

Mr. Henderson, you are right in saying that only a rise in consumption can shift the chinese economy on a more robust self-sustained path, but this is a gradual process. You can't change consumption habits overnight. Savings are high because of a lack of a comprehensive social security net (healthcare, retirement benefits) and this will not be resolved between now and next year.

Don't expect any miracles from the banks. China is not the US or Europe. The banking system is dominated by a few major state banks which lend predominantly to SOEs and far less to small businesses or individuals.

What the government can do is to support the construction sector by boosting infrastructure spending and support the exporters by massively reducing taxes.