EO: Chinese Economy Reaches Crucial Moment

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EO: 中国经济到了关键时点

June 17, Li Keqiang Jiabao chaired a State Council executive meeting, stressed the gradual increase in support for several key policy areas, including rural power grid upgrading and food storage facilities, urban sewage treatment and shantytowns, the old industrial areas and mining Park Transformation, water conservancy and western railway construction.

...Economic data released in early June would have shown the economy is on the path of stabilization and recovery, but economists still believe that the basis of the current economic stabilization is not yet stable.

Bureau of Statistics data released earlier showed that the "troika" of negative growth in exports and investment slow growth, only consumption remained stable. This means that steady growth can only rely to stimulate investment and consumption, while the short-term effective the fastest, is to continue to invest.

In fact, the speed of major infrastructure projects has been significantly accelerated. April 30 meeting of the Politburo meeting clearly, to steady growth as the primary goal of economic development. Subsequently, the National Development and Reform Commission in mid-May approved a more than 450 billion yuan in infrastructure construction projects.

However, investment-related data does not show the expected rapid growth in January-May. New projects increased by only 0.5%, at historic lows, new projects above ￥100 million is down 20% from last year.

And in May fixed asset investment grew 11.4%, down 0.6 percentage points. Among them, the infrastructure investment up 18.66 percent, down 1.7 percentage points from the previous month, declined for two consecutive months; manufacturing investment growth picked up slightly last month, 0.1 percentage point, to continue to remain low.

Solution? More interest rate and RRR cuts.

Capital Securities to a recent research report also pointed out that the monetary transmission mechanism in the current context of the overall poor structural "liquidity trap" can not rely on comprehensive liberal resolve, but only through directional loose, targeted by the central bank to the entity liquidity into the economy to solve.

Report that the future monetary policy is still oriented adjustment based, such as directional RRR, by policy banks to provide financing for the funding curve national economy and other important areas. Overall, the structural liquidity shortage problem can only be resolved through structural easing, coupled with signs of the economy bottoming out, the central bank policy-oriented or has entered into a short observation period.

Zhu Haibin is also expected, the central bank's future monetary policy operations will shift orientation loose.