GS Monthly View – China. An Opportunity for the Reformers?
China. An Opportunity for the Reformers?
In the past week there have been many important developments involving China, virtually all of which
symbolize ? at least to me ? that the reformers are in the clear ascendancy in Beijing. But, all we read in
Western media is about the Bo scandal and the Communist Party’s legitimacy. What better way of stopping
this mood than China stepping up the plate and saying “You make room for us inside the G20 and IMF and
we’ll step up to the role you expect”
Many G20 policymakers often say to me that China hasn’t really played much of a role yet. But, if the G20
consisted of a new G7 comprised of the US, Japan, the Euro Zone (as one), and each of the four BRIC
countries, China would be obliged to do more and be more accountable (and perhaps transparent).
Amongst the clear signs the reformers are in the ascendancy, apart from the clinical removal of Bo, was
each of last week’s decisions to reduce reserve requirements for some banks, and especially the news of a
widening in the daily trading band of the RMB to 1 pct . (Was it also a modest reward for the IMF in saying
it’s reducing their future China BOP current account forecasts? At last! )
We also had a lot of data published that showed reasonably clearly some success for the “soft and quality”
landing crowd. Real GDP did slow more than expected to 8.1 pct, but the March releases were generally
stronger than Jan-Feb. This supports many that think Q1 is likely to be the softest quarter in 2012. The
bounce in retail sales to +15.2 pct, in particular, was a good sign. In addition, March’s much stronger-thanexpected bank lending and M2 money supply data show that an easing in financial conditions has been
underway for a few weeks, even before this last RR cut. Yet again, the PBOC demonstrates that its
counter-cyclical policy levers are well-oiled and fine-tuned.
What was especially encouraging though the Q1 data was a comment a spokesperson said about the
contributions to the 8.1 pct growth. 6.1 came from consumption (more than 75 pct), 2.8 from investment,
and -0.8 pct from net trade. Who said China can’t rebalance? It’s already done it! We reckon (or James
Wrisdale does) that private consumption is now nearly 39 pct of GDP, up 4 pct points in the past couple of
years.
STARisk 