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Breaking - China Considering Second Stimulus Package

|Includes: ProShares UltraShort FTSE China 25 ETF (FXP)

China's online financial portal East Money reports today that government officials are considering a second round of stimulus measures as leading indicators continue their fall....

"New Economic Stimulus Measures Could Be Returning"

According to the article, a traditionally mid-July convened State Council Economic Situation Conference has been moved to the end of June triggering fears of a deterioration in China's economic prospects. Says one delegate "Everyone is pretty worried about the economy in the second half of this year".  

Chinese officials appear to be concerned about the steady drop in a number of economic indicators starting in the second quarter this year; a sharp contrast to the optimism prevailing after similar talks in April.

These Numbers include:

  • A fall in 10 of 11 leading indicators
  • PMI falls of 2.5 (NYSE:HSBC) between April and May
  • Factory Output and New Order readings of 49.6 & 49.7 in June.  A 50% YOY drop.
  • A fall in fixed asset investment in cities and towns of 4.4 percent YOY between January and April
  • A trade surplus fall of 69.9 percent from January to May (Unsaid if this is YOY but most likely)
Surveying these numbers, Vice Chairman of the National People's Congress Finance Committee Deputy Chief Yin Zhongqing (尹中卿)stated:

"In the last few months, especially after the release of April and May figures, a lot of people weren't optimistic.  They were pessimistic. Apparently this is what happens when sentiment [words] destroys a favorable rebound.  Right now things have changed and no one really has any certainty".

Economists now see GDP growth to slow to 8% in fourth quarter of 2010 while many believe risks to the economy in the fourth quarter have strengthened.

                                      The government response
" 董先安则认为,在二季度经济数据的刺激下,政策转型会很快发生。而未来政策可能侧重以下几个方面:一是政府将明确刺激大城市地铁、高速等公共基础设施投资项目;二是延长或新增消费刺激措施;三是进一步鼓励民间投资;四是进一步推进人民币汇率形成机制。"

In lieu of the above, the chief macroeconomist of Industrial Securities  views the following as potential government responses:

1. Government stimulus at public transportation infrastructure such as subways and highways.
2. Extend or increase consumer stimulus measures 
3. Further encourage personal investment
4. Further promote RMB exchange rate reform

More to come....