After some disappointing data at the start of the year, Chinese GDP growth slowed to 7.4% year-over-year in Q1, and 1.4% quarter-over-quarter.
In response to this, China announced a mini-stimulus that includes: “faster infrastructure project approvals; pro-growth reform initiatives related to the SME, utilities and services sector; more tax relief; maintenance of ample interbank liquidity; increased “targeted” monetary and credit easing through on-lending liquidity injection and another targeted RRR cut for specific financial institutions; as well as accelerated fiscal disbursements,” according to UBS’ Wang Tao.
The mini-stimulus has already helped boost business sentiment as was reflected in Monday’s HSBC June Flash PMI report which saw a surge to 50.8, from 49.4 in May.
Bloomberg’s chief economist Michael McDonough tweeted a chart that showed how bearish economists have got about Chinese economic growth (with the caption): “this chart illustrates the need for mini-stimulus in China:”
Of course, we’re previously pointed out that the biggest problem facing China isn’t the lack of credit growth, but the lack of the access to investment, or a lack of intent.
China needs to rely less on monetary policy and work on more structural reforms.