One of China’s most senior economic officials just warned slower growth won’t automatically mean more stimulus


The expectation that Chinese authorities are poised to unleash more stimulus on the nation’s economy is at the centre of a lot of China commentary right now.

One of the most senior economic officials in the country, however, says the labour market is strong, and so the need for further large-scale stimulus isn’t there.

Ma Jun, chief economist at the People’s Bank of China, said on Monday that recent rate cuts and reductions to bank reserve ratio requirements were “mainly to prevent passive tightening of monetary policy and to maintain a neutral or steady monetary policy,” according to China’s state-run newspaper the People’s Daily.

Jun noted that “even though economic growth is coming under downward pressure, the present employment situation is good, structural adjustments have made positive progress, and there is no need for strong stimulus”.

Indeed, as reported last week, China’s labour market remains hot with the number of job openings to job applicants in urban areas sitting at the second-highest level on record in the first three months of the year.

Should Jun’s remarks be reflective of the broader view within the PBoC – that policy easing was designed to address tighter money market conditions for certain industries rather than to help accelerate economic growth – the ramifications for financial markets could be significant.

It’s been well documented that a large part of the rally in Chinese stocks has been built on the belief that slower economic growth will simply equate to more monetary easing from the PBoC. Should the markets have it wrong – that slower growth won’t automatically mean more stimulus – the grounds for continued buying in Chinese stocks looks increasingly flimsy in light of deteriorating fundamentals and slowing earnings growth.