.... y la China que? ...
China y la crisis.
Nov 14th, 2008 | BEIJING -- China said Friday it could work with the International Monetary Fund to help countries hurt by the global financial crisis, suggesting it might heed appeals to contribute to a bailout fund.
As President Hu Jintao prepared for a Washington meeting of leaders to discuss a response to the crisis, Vice Finance Minister Yi Gang sounded constructive, saying China was prepared to work with other countries. But at the same time, Yi reiterated that the most important step Beijing can take will be to keep its own economy stable.
"We are positively taking part in rescue actions for this international financial crisis," Yi said at a news conference. "There are many ways to do this. We can do it bilaterally, such as currency swaps. And we can do it multilaterally, such as taking part in activities on the platform of the IMF."
Hu is expected to come under pressure at the weekend meeting to use China's $2 trillion in reserves to help expand an IMF stability fund. Beijing has yet to respond directly to such suggestions but says Hu will press Western leaders to give developing countries a bigger role in such global financial institutions, a measure that analysts say might be a condition for a Chinese contribution.
Japanese Prime Minister Taro Aso said Friday that Japan is ready to lend up to $100 billion to the IMF to support nations reeling from the global financial crisis. The IMF has dipped into its reserves fund to provide emergency loans to Iceland, Hungary and Ukraine worth more than $30 billion.
Yi repeated Beijing's insistence that keeping its economy growing will be an important contribution to global stability. China announced a nearly $600 billion package on Sunday to boost economic growth through higher spending on construction and social programs.
"We have worked to stabilize the growth of China's economy. We believe this will be our biggest contribution to the international response to the financial crisis," Yi said.
Also Friday, another official said weakness in China's economy is worsening and the government faces a severe challenge as it tries to avert a sharp downturn.
"The downturn trend in our economy is more obvious, especially since September. We hope a rapid downturn in growth will not occur," Mu Hong, a deputy chairman of the nation's main planning agency, said at the news conference with Yi.
Mu expressed confidence the stimulus package would help the country weather the global downturn. But he said, "This international financial crisis is a new challenge for us. It is a severe challenge."
Beijing is moving quickly to launch the package and will distribute most of a planned 100 billion yuan ($15 billion) in additional government spending within the next two weeks, Mu said. He said the money will be spent on housing, rural development, highways, public health and environmental protection.
The government says the total stimulus -- which also calls for higher investment by state companies -- will be worth 4 trillion yuan ($586 billion) over the next two years.
China's economic growth fell to 9 percent in the latest quarter after a stunning 11.9 percent expansion last year. Exporters say foreign customers are canceling orders, which has led to layoffs and factory closures.
Mu blamed the weakness on the global downturn. But data released Friday showed domestic investment -- a key force driving China's rapid expansion -- is also cooling as companies cut back or put off spending on real estate, factories and other assets.
Investment in assets grew by 27.2 percent in the first 10 months of this year over the same period of 2007, the National Bureau of Statistics reported. That was down from the 27.6 percent growth reported for the first nine months of the year. Such investment is estimated to account for one-third of China's economic growth.
"China's pace of economic growth will reflect the extent to which accelerated infrastructure spending will be able to offset a slowdown in the property and manufacturing sectors," said a report by Jing Ulrich, JP Morgan Chase & Co.'s chairwoman for China equities.
"Further fiscal and monetary easing may be called for as growth moderates," Ulrich said.
... continua ...
Could fiscal policy rescue the day and prevent a Chinese hard landing? The optimists argue yes by pointing out that fiscal deficits and public debt are low in China and that China has the resources to engineer a rapid fiscal stimulus in a short period of time. But the ability of China to implement a rapid and massive fiscal stimulus is limited for a variety of reasons.
First, as pointed out by recent research (Global Insight) the combined effects of natural disasters, social strife in the West, and the Olympics have created a large hole in the central government budget this fiscal year. The Ministry of Finance may have dipped into various stabilisation funds to avoid the appearance of running a large deficit. For regional and municipal governments, the decline in turnover in local property markets has reduced the flow of fees and taxes, causing them to delay ambitious industrial development plans in some cases.
Second, a hard landing in the economy and in investment would lead to a sharp increase in non-performing loans of the – still mostly public – state banks; the implicit liabilities from a serious banking problem would then add to the implicit and explicit budget deficits and public debt. Note that the poor quality of the underwriting by Chinese banks –that financed a huge overinvestment in the economy - has been hidden for the last few years by the high growth of the economy. Once net exports go bust and real investment sharply falls we will see a massive surge in non-performing loans that financed low return and marginal investment projects. The ensuing fiscal costs of cleaning up the banking system could be really high.
Third, as pointed out by Michael Pettis – a leading expert of the Chinese economy – a surge in tax revenues in last 4 years has been more than matched by surge in spending so that if revenue growth diminishes/reverses it might not be easy to slow spending growth proportionately. Contingent liabilities from non-performing loans could also reduce resources available for a fiscal stimulus. As argued by Pettis: Total direct and indirect debt (and I am not including long term obligations like unfunded pension liabilities) is probably much higher than the official numbers which, depending on how you count, range from 15% to 30% of GDP…However, for reasons I have discussed many times before on this blog, I think actual Chinese government debt exceeds the visible debt. My guess is that without counting the possibility of rising NPLs in case of an economic slowdown (which ultimately can become contingent liabilities of the government), total government debt in China is probably 50% of GDP or higher. That means that China has a lot less room for running large fiscal deficits than we might suppose, and during the time it most needs to run a deficit – when the economy is slowing sharply – we may anyway see a surge in contingent debt as bank NPLs surge.
Fourth, while a fiscal policy stimulus has already started its scope and size has been so far relatively modest. Major stimulus measures announced by the Chinese government have included a major export tax rebate hike and a new state infrastructure plan and agreement to increase grain purchases to prop up export and investment growth. Further spending may include tax reform (value added tax to support fixed investment), more infrastructure spending, and on social security as well as government activities to provide capital to small and medium sized enterprises which can't access credit yet. The big question is however whether the Chinese government could increase the fiscal stimulus by an order of magnitude larger than the current effort if a quick order hard landing were to occur. The answer is probably not as moving a massive amount of economic resources from the tradeable sector to the non-tradeable sector (infrastructures and government spending on goods and services) will take time and cannot be done in a short period of time: the Chinese government has massive infrastructure projects for the next 5-10 years; but front-loading most of that multi-year spending over the next 12 to 18 months (if a hard landing risks to occur) will be close to mission impossible.
In conclusion the risk of a hard landing in China is sharply rising; a deceleration in the Chinese growth rate to 7% in 2009 - just a notch above a 6% hard landing – is highly likely and an even worse outcome cannot be ruled out at this point. The global economy is already headed towards a global recession as advanced economies are all in a recession and the U.S. contraction is now dramatically accelerating. The first engine of global growth – the U.S. on the consumption side – has now already shut down. The second engine of global growth – China on the production side – is also on its way to stalling. Thus, with the two main engines of global growth now in serious trouble a global hard landing is now almost a certainty. And a hard landing in China will have severe effects on growth in emerging market economies in Asia, Africa and Latin America as Chinese demand for raw materials and intermediate inputs has been a major source of economic growth for emerging markets and commodity exporters. The sharp recent fall in commodity prices and the near collapse of the Baltic Freight index are clear signals that Chinese and global demand for commodities and industrial inputs is sharply falling. Thus, global growth – at market prices – will be close to zero in Q3 of 2008, likely negative in Q4 of 2009 and well into negative territory in 2009. So brace yourself for an ugly and protracted global economic contraction in 2009.