First Insights: China: Minister of Finance indicates policy easing unlikely

Economics Research | Asia Ex-Japan

15 April 2013

First Insights: China: Minister of Finance indicates policy easing unlikely

The surprisingly weak Q1 GDP data in China have led to the important question: will the government loosen policy to stimulate the economy as it did in 2009 and 2012? We believe policy easing is not likely. An article published today by the newly-elected Minister of Finance Lou Jiwei reinforces our view.

According to the China News Agency, Lou pointed out that "some part of the government are over-confident on their capability to intervene in the economy and over-reacted to economic imbalance, which often leads to unintended economic volatility". He argues that the government should focus on protecting the market mechanism and providing public services, instead of having doubts that the market is capable of correcting itself and "intervene once economic imbalance emerges" (source: China News Agency website).

We agree with Lou's message. As growth slows and financial risks rise, we think it is critically important to avoid policy mistakes of stimulating the economy again (see China: Rising risks of financial crisis, 15 March 2013). The message from his article is consistent with the comments from Premier Li on 14 April to balance between long-term and short-term objectives. We therefore believe policy easing is unlikely in the short term, and growth will slow further for the rest of 2013. We revised down our 2013 GDP growth forecast from 7.7% (which was at the low end of the consensus) to 7.5% today (see China: Lowering our GDP forecast on weak Q1 data, 15 April 2013).

Economists
Zhiwei Zhang