Confused Direction
Source of picture: China Daily
A TIGHTER monetary policy is being evaluated by China’s State Council, one of the country’s most-powerful legislative bodies, according to numerous media reports – including this one from Reuters.
And the chairman of China’s sixth-biggest lender was quoted in the Financial Times today as saying that the government should not be afraid of a “moderate slowdown” in the economy.
“Monetary policy must not neglect asset-price movements,” added Qin Xiao, chairman of China Merchants Bank.
These comments follow bank loans surging by 149% in the first nine months of this year over the same period in 2008 to $1,260bn.
Economists are divided between those who think that the surge in lending will be inflationary and those who believe it will be deflationary because of new industrial capacity.
But it seems clear the government is getting worried. It faces the hard job of easing back on stimulus without causing a double-digit recession (overhasty increases in deposit rates caused a sharp and painful slowdown in 2007).
The rate at which lending is increasing has already been slowed with stricter guidelines on preventing easy money from being channelled into speculation.
Now that something bigger appears to be in the offing, when can we expect the big policy shift?
Not before next February’s Chinese New Year, said Stephen Green – economist at Standard Chartered in Shanghai.
Expect chemicals markets to be blighted (or blessed if you are trader who makes the right moves) with rumours and counter-rumours about policy changes until official announcements are made.
The longer the details remain unconfirmed, the more likely it is that buying ahead of the holidays will be quieter than anyone had expected.
Even when the announcements are out there, debate could rage on the impact of the measures – making it even harder for producers and buyers to read the tea leaves.