1 Talking Point 6 Week in 60 Seconds 7 Environment Week in China 8 Shipping 9 Banking and Finance 11 China Consumer 12 Property 13 Chinese Character 15 Media 11 April 2014 16 Society and Culture Issue 233 20 And Finally www.weekinchina.com 21 The Back Page Boom or bust? m o c . n i e t s p e a t i n e b . w w w As the State Council announces another stimulus plan, what does it mean for China’s hopes for economic reform? Brought to you by Week in China Talking Point 11 April 2014 Charge of the Li brigade Stimulus to the rescue? Worried about growth, government unveils new plan Bring out the builders: Beijing announces plans for a mini-stimulus to boost the flagging economy as Premier Li Keqiang just un - thresholds for the tax cut might be meeting growth goals. Li Keqiang Hleashed a weapon of mass con - raised too. talked at the National People’s Con - struction? That was the question on The renewed focus on low-in - gress last month about having some the minds of analysts last week after come housing was more in keeping flexibility around achieving this the State Council announced an - with Premier Li’s visit late last year’s 7.5% GDP target (see WiC230), other investment programme de - month to deprived areas of Chifeng, preferring to focus on a combina - signed to boost China’s slowing a large city in Inner Mongolia. tion of job creation, price stability, as growth. Will the plan work? Or There, Li publicised efforts to build well as growth figures as a better should the news dishearten reform - 4.7 million apartments in urban measure for economic perform - ers who say that China’s economy slums, telling residents: “We can’t ance. But the numbers for the first must shift to a more sustainable let our people live in shanty houses quarter look like they might test the model and avoid a return to stimu - while building skyscrapers on the limits of the new thinking. Growth lus spending? other side of the road.” The media is going to be down on the last three has reported that Rmb1 trillion months of last year, say Qu Hongbin What was announced? ($162 billion) will be invested in con - and Sun Junwei at HSBC, and in The main items were tax breaks for struction efforts this year. coming months might even slide small businesses, more investment The third promise was to acceler - below 7% (on a year-on-year basis) in railways and a further focus on ate railway construction. Another based on the current outlook. redeveloping some of the country’s 6,600km of line is to be started this That would be unacceptable to poorest shantytowns. year, an increase of 1,000km on last the State Council, especially as Li Under the extension of an exist - year, much of it in inland provinces. has indicated that 7.2% is the mini - ing policy – due to be dropped at the mum threshold for generating P h o t o end of next year – small businesses Why is the spending seen as sig - China’s required 10 million new S o u r will now hold on to their tax cuts nificant? jobs a year. c e : R e until the end of 2016. The State In the short term, it looks like a re - So the measures announced this u t e r s Council also seems to be saying that sponse to anxiety in Beijing about month are intended to stabilise the 1 In the future, finance will help new growth flourish. There are grounds for cautious optimism in the real economy — but creating sustainable growth always needs careful encouragement. New income streams should be built on opportunities that have longevity and new solutions prepared for technology that will continue to evolve. In this era of transparency, HSBC is working with clients to help create conditions in which businesses can flourish. By connecting the developed and the developing world, we can help you protect and cultivate real growth — and so create that success that lasts. There’s more on the future of finance at www.hsbcnet.com/growth HSBC operates in various jurisdictions through its affiliates, including, but not limited to, HSBC Bank plc who is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, The Hongkong and Shanghai Banking Corporation Limited, HSBC Securities (USA) Inc., member of NYSE, FINRA and SIPC, and HSBC Bank USA, NA. Issued by HSBC Holdings plc. AC22067 Week in China Talking Point 11 April 2014 economic mood. But they also lead have subway transport. to questions about the broader ef - Beijing News says that more di - fort to restructure the economy – an verse sources of capital are being initiative sometimes referred to as drawn into the investment process Likonomics (for more on Li’s eco - too, another major difference to nomic thinking, see WiC186). 2008. China Development Bank will The Likonomics blueprint com - issue a special bond for shantytown prises three main parts – no new redevelopment, for instance, and will stimulus, as well as deleveraging raise capital from financial institu - and pushing through structural re - tions including the Postal Savings forms – the South China Morning Bank of China, commercial banks, so - Post noted this week. But Li now cial security funds and insurers. Pri - seems to be backing away from his vate sector funding will also be aversion to pump-priming the sourced for the railways, partly economy, and to be returning to the Keeping cool: Li Keqiang through a special fund worth up to more traditional box of policy Rmb300 billion, as well as through tricks. Does that mean that we agency explained this week. the issuance of Rmb150 billion of should forget about Likonomics as “China’s economy needs a little bonds to finance the build-out. a reforming agenda and that eco - stimulation but not a fully fledged By contrast, much of the 2008 nomic policy is all about stimulus stimulus. The tax breaks and accel - stimulus was funded with bank once again? eration of railway investment will loans. This is now seen as a mistake, certainly inject new blood into the not only because much of the lend - This time it’s different… faltering economy, but they do not ing was poorly conceived or waste - This is what the policymakers are forebode any massive spending or ful, but also because the payback saying. For a start, the proposed in - borrowing.” periods for the better projects have vestment is relatively limited in size. Others chose to highlight the dif - turned out to be longer than most Analysts haven’t come up with a ferences in how the money is being of the loans themselves. The new number for the total being prom - spent. China must avoid a repeat of plans look different, helping to shift ised, saying that there isn’t enough the worst excesses of the Rmb4 tril - the financial burden away from the information to support a calcula - lion campaign, warned ifeng.com, banks and local governments to a tion. But what’s clear is that it won’t which was hijacked by local govern - broader range of investors. come close to the Rmb4 trillion ments and state-owned firms. The (equivalent to $586 billion at the stimulus binge also bred overca - Will the mini-stimulus work? time) used to counter the global fi - pacity in industries like steel, real Underwhelmed is probably the best nancial crisis in 2008. estate and cement, and opened up word to describe the initial reaction The measures are being termed colossal new opportunities for to the plan (much less intervention as more of a “mini-stimulus”, even graft. But this time around, the from the central government than if government ministers seem re - measures are targeted at areas of anticipated, the Shanghai Securities luctant to say so openly. “They are the economy more likely to deliver News thought) and Chinese stock doing it quietly. They cannot use a return on investment. markets fell. Since then, the bourses the word stimulus, which has be - That’s especially so in the focus have done better and the key Shang - come a negative word,” Xu Gao, on railways, where HSBC has long hai Composite has rallied to a six- chief economist at Everbright Secu - argued that China is significantly week high on speculation that more rities, told Reuters. underinvested. One of its favourite measures may be announced. But Xinhua couldn’t avoid the datapoints: that the rail network at One reason for the lukewarm re - term entirely, arguing that this the end of 2012 (at 98,000km) was sponse to last week’s announce - year’s plan is very different to ear - about the same length as that of the ment is that it contained little that lier ones. “China has quit the habit United States in the 1890s. The sys - is genuinely new. Most of the policy of resorting to the so-called ‘mas - tem carries 24% of global freight steps didn’t sound very different to P h o t o terpiece’ stimulus, which could be volumes on just 6% of world capac - proposals from last July, when the S o u r as addictive and damaging for a na - ity, HSBC has also argued, and 100 State Council made a similar set of c e : R e tional economy as doping is for the cities with populations of more announcements (see WiC204). For u t e r s human body,” the state news than 5 million people still don’t instance, Rafael Halpin, a China an - 3 Week in China Talking Point 11 April 2014 alyst for the Financial Times, told the Beyondbrics blog that the Planet China 6,600km of new railway track was a Strange but true stories from the new China pre-existing target and shouldn’t count as fresh investment.