Latest News:  
Beijing   Sunny    21 / 12 ℃  City Forecast

English>>China Business

Commentary: Stimulus should be small

By Yi Xianrong  (China Daily)

08:10, October 20, 2012

The recent upturn in economic data have led some market analysts to believe that China's slowed economy has bottomed out and will be on a rising trajectory in the fourth quarter.

To give a boost to economic growth, they argue, the country's central bank should adopt some forcible stimulus measures, such as loosening domestic monetary policy.

But under the current economic circumstances at home and abroad, China's monetary authorities should make no big changes to the established monetary policy.

China's economic deceleration over the past year has not only been a result of weakened external demand, it has also been caused by its ongoing economic structural adjustments. That means any short-term stimulus measures will be unlikely to bolster long-term economic growth.

There are worries that a drastic economic deceleration, if unchecked, will increase China's macroeconomic risks and possibly result in the widespread bankruptcy of State-owned enterprises, a large-scale laying off of employees and an increase in bad bank loans, and could cause a serious financial or economic crisis. Thus it is argued the central bank should launch a loose monetary policy to return the national economy to fast-track growth, by cutting interest rates, maintaining market expectations for the yuan's appreciation, privatization of some State-owned enterprises and other short-term stimulus measures.

Nevertheless, such an economic prescription is based on two judgments. One is the current pricing mechanism in the Chinese market can elevate the investment enthusiasm of enterprises. The other is bad effects will emerge if China's economic growth is not fast. In fact, no effective pricing mechanism has so far been established in the financial market. The Chinese mainland's fast-growing economy over the past years has been built on a decade-long real estate boom and such a housing-pegged growth momentum cannot be endlessly sustained.

The 1.9 percent Consumer Price Index growth in September, which is at a comparatively low level, and the worrisome 3.6 percent decline in its Producer Price Index mean there is not much space for the central bank to lower interest rates. The low-running PPI in recent years has been a result of the country's years of housing market regulations and the sector's overcapacity. The excessive dependence on the housing market for economic growth has overdrawn its future growth potential. Once such growth decelerates, overcapacity will inevitably emerge, which will correspondingly cause a full PPI decline.

Therefore the country should not be excessively worried about its current decline in PPI growth. It should look upon such a decline as the start of economic recovery and recognize that the current high housing prices are the biggest concern to the national economy. The swollen housing bubble, if not effectively squeezed, will remain forever a headache to the Chinese economy.

【1】 【2】

News we recommend:
Let the train, take the strain Personal care market to keep growing An Apple a day isn't keeping critics away
Global companies expand rapidly in China Shanghai's 'other' market China's tourism industry reaps golden harvest
Commentary:Asking the right questions  More Investment, More Woes? All that glitters is gold


Leave your comment0 comments

  1. Name


Selections for you

  1. South China Sea Fleet in training

  2. Airmen repair radar antenna

  3. N. Korea's Kim attends event

  4. Same-sex wedding performed in Fujian Province

  5. Naked truth challenges values

  6. Largest Apple store in Asia on Wangfujing

  7. Get ready for autumn health

  8. Funny pictures by Chinese net friends

Most Popular


  1. Experts on touch-and-go landing on the Liaoning
  2. There is no justification for street violence
  3. Tokyo shrine visit angers neighbors
  4. BRICS can build optimism
  5. Rich list shines a light on China’s shifting economy
  6. Indigenous industry key to change
  7. Miners must break ground overseas
  8. 2nd US debate sees candidates flex China muscle
  9. Romney's post-debate bounce could soon fade
  10. New road rule marks first step to orderly society

What’s happening in China

Food poisoning sickens over 100 students

  1. Survey shows Chinese workers stressed out
  2. Retiring can cause more quarrels, divorces: court
  3. Training center for helicopter pilots opens
  4. Young migrant workers targeted in phone scams
  5. Microblog helps Chinese girl regain father's wages