Last year, China’s economic growth began to slow down, a result of both cyclical factors and government control. The Chinese government took the initiative to lower the growth rate so as to better restructure the economy and transform its enterprises. However, the government still took different economic measures for different sectors, giving birth to the fine-tuning of its macro policy. With the mini-stimulus measures to these sectors, in recent months the Chinese economy has gradually started to stabilize. Thus, the debate rose again over whether to continue the mini-stimulus or whether the mini-stimulus is necessary.
The data of recent months indicate that China’s economy is improving in both supply and demand, which is related to the government’s mini-stimulus policy. A survey by the Chinese Federation of Logistics and Purchasing shows a starting market and rebounding orders for such cyclical industries as metal wares, generic equipment, chemicals, etc. Driven by the accelerating market demand and stable growing production, enterprises increased their purchasing of raw materials, pushing PMI to the year-high level of 52.3%; the purchasing price of the main raw materials went up to 50% and the purchasing price index of manufacturing leveled off after a fall.
Supporters of a continuing government mini-stimulus policy believe that, although a continuous PMI growth indicates a better economy and China still maintains stable economic growth, the pressure of a downward economy still exists, and the coordination of growth still needs to improve. In particular, a further study of the PMI indexes of different types of enterprises shows that different enterprises show big variation in their PMI indexes.
Data indicates that big enterprises’ PMI in May reached 50.9%, 0.1% higher than April. Medium-sized enterprises’ PMI was 51.4%, 1.1% higher than that of April, surpassing the large enterprises for the first time since June of last year, while the PMI of small enterprises was 48.8%, unchanged from April, which has remained below the critical point since the year, showing that, in the case of a market oversupply and overcapacity, micro enterprises still face a big problem in production and operation. Other data also indicates that, compared with large- and medium-sized enterprises, micro enterprises have shown a weak performance for a relatively long time, especially those in the logistics and circulation fields; whereas inaccessible and unaffordable financing has hampered the development of micro enterprises.
Premier Li Keqiang has recently pointed out that China should strengthen its “directional quasi drop” measures, providing bigger support to the micro enterprises in refinancing and special financial bonds, reducing the social financing cost, regulating the business of inter-bank loans, trusts, wealth management and entrusted loans, and shortening the financing chains. From the perspective of supporting economic growth, a P2P mini-stimulus may help solve the problem of difficult financing for micro enterprises, and will play a positive role in stabilizing economic growth.
However, those opposed to continuing the mini-stimulus believe that many difficulties facing China’s economy are the consequences of the “stimulus plan.” A continuing stimulus, or even a mini-stimulus, can also delay a solution to overcapacity and bubbles, and it will not help China’s economic restructuring and will not help the market play a decisive role in reallocating resources. Since the economy has already begun to stabilize, the government should withdraw its macro economic stimulus so as to avoid more consequences of intervention.
Anyway, the Chinese government seems to have given up the measures of stimulating economic growth through a large-scale public investment and has turned to the measures more flexible and more logical to the market. This is due to the fact that for many years China has probed a law of a socialist market economy. In its development, China should consider job growth, social stability, fiscal sustainability and the security of the financial system on the one hand, and focus on the reform of the economic structure and squeeze out the internal economic impetus, etc. on the other hand.
As the Chinese government has given up its large-scale economic stimulus, China’s economy and demand will not grow rapidly. Several years ago, many resource exporters benefited from exporting to China. Now, these countries all hope that China’s economy can rebound fast, so as to resume their successful export to China. However, China is restructuring the economy and adjusting its industry. Although China’s economy will not suffer a “hard landing”, the general demand will not boom as it did in previous years, so China’s import of resources will not get back to its previous situation. That’s the problem that becomes a bigger headache to the exporters of resources.
Ding Yifan, Deputy Director, Research Institute of World Development, China Development Research Center (DRC).