Free Trial

REPEAT: MNI: Stock Surge May Curb PBOC Further Easing: Zhang

MNI (London)
Repeats Story Initially Transmitted at 03:45 GMT Mar 1/22:45 EST Feb 28
--Fiscal Stimulus Limited By Reduced Tax Revenue: Zhang Bin
     BEIJING (MNI) - Surging Chinese stocks could constrain the People's Bank of
China's opportunities to further ease policy in coming months, although any
sharp downturn in the economy may still open the way for rate cuts, Zhang Bin, a
senior fellow at the China Finance 40 Forum think tank, told MNI.
     Further easing could add fuel to an already on-fire stock market,
underpinned by low rates and abundant liquidity, Zhang said, while noting
policymakers could already be on his wavelength.
     "Policymakers are still cautious over large easing and may prefer a
marginally tighter stance if the economic situation is improved," he added,
repeating Premier Li Keqiang's recent comments warning against a flood of easy
money.
     In coming months, Zhang said, looser policy would boost asset prices but
may not support the real economy, which could see a further slowdown leading to
lower profits, weaker tax revenues and increased corporate debt.
     China stocks have rallied sharply this year, recouping much of the downside
seen through 2018.
     --KEEP CUT OPTION
     Zhang added that it was too early to remove the option for rate cuts,
particularly if overall demand was weak in the second quarter and the economy
faced deflationary pressure as industrial prices and profits fall, predicting
the PBOC may be happy to watch from the sidelines, waiting for greater clarity.
     His overall outlook remains gloomy, seeing both external and domestic
weakness and export growth will slow as global demand shrinks and the impact
from tariffs filters through.
     He also expressed concern over the sustainability of manufacturing
investment growth due to soft industrial profits, low capacity utilization rates
and weak investment levels.
     Slower infrastructure investment and a slowing property sector will also
offer limited support to the economy, Zhang said.
     --LIMITED FISCAL STIMULUS
     Zhang, also a director of the Global Macroeconomy Research Division of the
Chinese Academy of Social Sciences, predicted no big pick-up in infrastructure
investment this year, as fiscal spending will be constrained by the ongoing
tax/fee cuts and reduced tax revenue, while the authorities are reluctant to
push a big increase in the fiscal deficit.
     His overall outlook remains gloomy, seeing both external and domestic
weakness and export growth will slow as global demand shrinks and the impact
from tariffs filters through.
     He also expressed concern over the sustainability of manufacturing
investment growth due to soft industrial profits, low capacity utilization rates
and weak investment levels.
     Slower infrastructure investment and a slowing property sector will also
offer limited support to the economy, Zhang said.
     --LIMITED FISCAL STIMULUS
     Zhang, also a director of the Global Macroeconomy Research Division of the
Chinese Academy of Social Sciences, predicted no big pick-up in infrastructure
investment this year, as fiscal spending will be constrained by the ongoing
tax/fee cuts and reduced tax revenue, while the authorities are reluctant to
push a big increase in the fiscal deficit. 
     Special bonds would not boost general infrastructure investment at a large
pace under the current financing mechanism, Zhang noted, saying almost half of
infrastructure investments in 2018 were non-profit quasi-welfare projects and
therefore not the target of special government bonds. 
     --CREDIT DEMAND
     For Zhang, the PBOC's latest moves to push credit expansion will not offset
the impacts of previous deleveraging restrictions, with traditional channels of
credit provision blocked, so a new credit mechanism is needed "to stabilize
economy and prevent debt risks".
     Any new mechanism should focus on increasing general local government bonds
to help finance public welfare projects, enriching long-term financial products
including launch of the real estate investment trusts (REITs)and guaranteeing
genuine financing needs of property companies, he said.
     Zhang does not believe credit policy should be used as a tool to target
rising house prices.
     "(The authorities) should not sacrifice credit expansion in a bid to curb
the price rising in the property market in certain cities," Zhang said. Higher
house prices should be targeted by increasing land supply, developing the rental
housing market and improving public infrastructure, he argued.
--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com

To read the full story

Close

Why MNI

MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
}); window.REBELMOUSE_ACTIVE_TASKS_QUEUE.push(function(){ window.dataLayer.push({ 'event' : 'logedout', 'loggedOut' : 'loggedOut' }); });