Chinese Economy: Unstable, Unbalanced, Uncoordinated, and Unsustainable – Stephen Roach
From Morgan Stanley – Global Economic Forum:
Those were not my words – at least not when I heard them firsthand in Beijing, last Friday, 15 March. In uncharacteristically blunt language, China’s Premier, Wen Jiabao, used the occasion of his annual press conference following the conclusion of the National People’s Congress to send a very clear message about the state of the Chinese economy. He explicitly characterized macro conditions as “unstable, unbalanced, uncoordinated, and unsustainable.” I have never known a senior policy maker or political leader anywhere to leave it like that without rising to meet his own self-imposed challenge. Premier Wen has put his reputation firmly on the line. China, in my view, now has no choice but to continue tightening as it attempts to bring its rapidly growing and unbalanced economy under control.
The ink was barely dry on the Premier’s observations when China’s central bank followed the next day with a rare Saturday announcement of an immediate monetary tightening – the third interest rate hike in 11 months, which reinforces five increases in bank reserve ratios implemented over the past nine months. The latest 27 basis point hike in the policy lending rate came only a day after Zhou Xiaochuan, Governor of the People’s Bank of China, sent a crystal-clear warning, ” (F)rom a macro perspective, after serious study, we decided to place further controls.” In central banking circles, it doesn’t get any more direct than that. Suddenly, China’s once opaque policy authorities are amazingly transparent – owning up to the seriousness of their macro control problems and setting in motion what I believe will ultimately be a much more determined shift to policy restraint than has been evident in a long time. [Full Text]