China´s much needed anti-corruption drive has now put the country into a lock-down mode, and new projects have halted, tells business analyst Shaun Rein at CNBC. The cut in the reserve ratio ratio (RRR) this weekend is one way for a kickstart, although nobody know what will really work.
Shaun Rein at CNBC:
A: I have been saying for the last three months, its much more bearish than the rest of the market, the economy is lot weaker than a lot of people think. First, the government has been very serious about pollution reduction, which has impacted some of the capacity of the large manufacturing, steel, cement and like that as well as the corruption crackdown and that is one of the big concern that I have right now. The correction crackdown is serious, it is widespread and it is needed. There is way too much corruption, but what happened is the whole country sort of in lockdown mode, nobody is willing at the government level to approve new projects, procurement department and state owned enterprises are nervous about buying things because they are worried about being fingered as being corrupt. So even with this reduction in the reserve requirement ratio (RRR) I am not concerned it is going to have as big effect on stimulating economy as people think because people won’t loan out money and people won’t borrow money if they are scared to do business right now.
Sonia: What does the Chinese market need to stimulate the economy and if this growth continues to disappoint then would you expect an additional benchmark rate cut in the next couple of quarters, something that many experts are now talking about?
A: I think what we need to look at is not gross domestic product (GDP) growth but we need to take a look at unemployment and the second reason why I am more concerned about the economy is in the last month urban unemployment has been hovering around 5 percent – that’s really a problem. So the unemployment rate in areas of manufacturing are still fairly strong and you can easily stimulate that by forcing state owned enterprises to do heavy investment; train construction, airport construction and you can get jobs there but the issue is urban unemployment is weak and there aren’t a lot of easy remedies. The government is trying to switch from manufacturing oriented economy more towards one of technology and innovation as I outlined in my new book ‘The End of Copycat China’ but it is not easy to do that. You cannot get companies that are producing things all a sudden to become innovators, so there is definitely going to be some weakness, some problems in the economy over the next three-four months and frankly there are no easy answers on how they stimulate the economy.
More at CNBC.(including audio)
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