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China announces mini-stimulus to keep economy on even keel

  • China's State Council has unveiled another mini-stimulus package as part of an attempt to stabilize slowing growth even as the government looks to reform the economy so that it relies less on the state sector.
  • "There's a balance," says Mark Williams of Capital Economics. "The leadership wants to push ahead with reform, but it's aware that it has to maintain confidence."
  • The program includes selling 150B yuan ($24.6B) in bonds for railway construction and creating a development fund of 200-300B yuan a year for a similar purpose, improved housing for those on low incomes, and tax relief for struggling small companies.
  • The measures had already been announced but not as a package to boost GDP, while the program is a bit of a re-run of a mini-stimulus that China introduced last year to lift flagging growth.
  • The State Council didn't say whether monetary policy would be loosened - the dilemma for the government is that it's also trying to rein in soaring lending.
  • State Council statement
  • Meanwhile, China's official non-manufacturing PMI slipped to 54.5 in March from 55 in February, while the HSBC services PMI rose to 51.9 from 51.
  • The Shanghai Composite is -0.95%, while the Hang Seng is +0.2%.
  • ETFs: FXI, PGJ, GXC, FXP, YINN, KWEB, CYB, HAO, CNY, ASHR, CHIQ, DSUM, TAO, CHIX, YANG, CQQQ, MCHI, PEK, QQQC, XPP, YAO, CHXX, YXI, CHII, FXCH, CHXF, ECNS, CHIM, CHIE, KFYP, FCA, TCHI, CHLC, CHNA, KBA
Comments (4)
  • bbro
    , contributor
    Comments (9301) | Send Message
     
    I believe China's FX reserves grow by 300 to 400 billion dollars a year....
    3 Apr, 07:24 AM Reply Like
  • Michael Nau
    , contributor
    Comments (972) | Send Message
     
    Those reserves are basically useless. So say they sell them to buy RMB-denominated assets, the RMB will go through the roof and the export sector will go down the toilet. If they touch them, their whole economic model will unravel.

     

    The reality is that China has been overpaying for dollars for years (i.e. undervalued currency) so they will have to realize a massive loss eventually when the RMB rises. There's no way around it, but they can keep trying to blow the bubble until there is absolutely no money left. Think Japan late 1980s multiplied by a factor of 2 or 3.
    3 Apr, 08:53 AM Reply Like
  • Doug Meeks
    , contributor
    Comments (1103) | Send Message
     
    Michael, I agree. I think your thoughts about this are important and wanted to say thanks for commenting. China has a long history of this happening in terms of foreign involvement.
    3 Apr, 09:40 AM Reply Like
  • Moon Kil Woong
    , contributor
    Comments (11012) | Send Message
     
    This is added on top of China's devaluation of their currency when the Crimea crisis started which in itself is a giant stimulus supporting continued exports.
    3 Apr, 11:09 AM Reply Like
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