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5 Reasons Why Chinese "Stimulus" Hopes Are Overdone

Tyler Durden's picture




 

A surprise (to some) drop in China's PMI was just enough bad news to prompt the good-news-seeking BTFD'ers into expectations of additional stimulus from China. Despite 'PBOC advisors' (implictly the mouthpiece of official policy strawmen) stating openly not to expect stimulus and confirming that China will see a "crisis" in local-government financing "but not as expolosive as the 2008 crisis", and that "China must face the moral hazrd issue", investors are buying CNY, copper, Chinese stocks, and practically everything else on the back of hopes for moar money. However, as Bloomberg's Tom Orlik explains, with the government facing conflicting pressures an abrupt about-face in policy is unlikely.

 

Via Bloomberg Briefs,

1. A significant step toward stimulus would be a step back from reforms intended to control runaway corporate credit and local government debt. Doing so might risk a sharper correction down the road.

2. The State Council’s statement suggests little in the way of new government spending. It promises to accelerate existing projects rather than to start new ones, indicating little additional impetus from the public purse.

3. Similarly, the People’s Bank of China’s recent reintroduction of the 28-day repo at a rate of 4 percent suggests the central bank wants to re-anchor rates at a higher level. At the recent National People’s Congress, PBOC Governor Zhou Xiaochuan said interest rate liberalization is on an accelerated track and is expected to push rates higher.

4. A growing number of analysts expect a cut in the reserve requirement ratio, which would boost bank lending. The reserve requirement ratio is a blunt instrument, and a cut would signal to the markets that the central bank is stepping back from its deleveraging agenda. Finetuning liquidity via open-market operations may be a preferable alternative at this point.

5. In the details of the PMI release, deteriorating output and new orders paint a bleak picture of domestic demand. Rebounding export orders suggest February’s pronounced drop might overstate the weakness of foreign sales. Employment showed signs of stabilizing. Labor markets are a primary focus for China’s policy makers, and that’s another reason to think a wholesale shift to stimulus may not be in the cards.

 

But apart from that... we must buy because the Central Banks have taught us that is the right thing to do...

 

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Tue, 03/25/2014 - 10:41 | 4589937 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Central Banks have taught us that is the right thing to do...

Central Banks have NEVER done the right thing. What a hilarious statement!!!

Tue, 03/25/2014 - 11:11 | 4590031 whotookmyalias
whotookmyalias's picture

I can name that song in one note. Because the Chinese have a history of screwing things up due to greed, corruption and lust for absolute control.  (And this time is no different.)

Tue, 03/25/2014 - 10:42 | 4589938 Cognitive Dissonance
Cognitive Dissonance's picture

'They' (US, China, Japan, Britian) will try to stuff 20 pounds of fiat into a 5 pound fiat bag even if it kills us.

Tue, 03/25/2014 - 10:51 | 4589957 Spastica Rex
Spastica Rex's picture

It's for your own good.

Tue, 03/25/2014 - 10:53 | 4589961 LawsofPhysics
LawsofPhysics's picture

..and the "good" of the children, of course (future debt slaves).

Tue, 03/25/2014 - 11:01 | 4589989 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Don't forget the grandchildren and other future generations.......

Tue, 03/25/2014 - 11:06 | 4590012 Dr. Engali
Dr. Engali's picture

Ah screw them. We won't be around. Let them pay for it.

Tue, 03/25/2014 - 11:05 | 4589998 Dr. Engali
Dr. Engali's picture

Damn we keep creating moar and moar digital fiat for the bloated banks and you serfs still aren't happy. Ungrateful dogs.

Tue, 03/25/2014 - 10:42 | 4589939 Big Corked Boots
Big Corked Boots's picture

I'm struck by the irony that Red China is grappling with the moral hazard issue, while the US, in all of its 'Judeo-Christian values' bullshit, skips over moral hazard like a stone hopping over a pond.

Here's to the coming flames, for one and all.

Tue, 03/25/2014 - 11:12 | 4590023 Dr. Engali
Dr. Engali's picture

Rest assured that the moral hazard lessons will be reserved for the right people. Those closest to the seat of power will be spared from that unnecessary hardship.

Tue, 03/25/2014 - 10:45 | 4589948 Bokkenrijder
Bokkenrijder's picture

...but but but...I thought the Chinese were so smart because they are buying all that gold?

Sure, maybe the Chinese are smart(er) now, but I'd dampen my hopes to think that the Chinese will introduce any gold backed currency. The Chinese copy/paste everything the West does: including our bamkrupt fiat currency system.

Tue, 03/25/2014 - 10:55 | 4589969 LawsofPhysics
LawsofPhysics's picture

Yes, but hey, at least they execute politicians and CEOs alike when they fuck up.

 

Might be worth a bank run or two in the U.S.S.A. just to see that kind of accountability...

 

 

Tue, 03/25/2014 - 11:22 | 4590097 Ban KKiller
Ban KKiller's picture

Here we use tall buildings and nail guns?

Tue, 03/25/2014 - 15:26 | 4591322 headhunt
headhunt's picture

The executions are directed by those in power blaming someone else.

Guess what... as a serf you are 'someone else'

Tue, 03/25/2014 - 11:55 | 4589972 buzzsaw99
buzzsaw99's picture

If they are going to get cozy with putin they should probably build some pipelines and natty fueled power plants around Bejing. Then again they could just continue to enjoy peak smog. If you like your smog you can keep your smog. Bitchez.

Tue, 03/25/2014 - 11:17 | 4590068 Ban KKiller
Ban KKiller's picture

LIke the U.S. China is not to be trusted, at all, about anything. Especially any "food" they export. The Chinese use the same crooked accounting that Wall Street uses only on a much larger scale. Their country is polluted and the people are being exploited...but they have nice clothes and fast cars. Oh...and ghost cities. Communisim, like Capitalism is dead. Replaced with greed as per the usual.

Tue, 03/25/2014 - 11:24 | 4590108 Carl Popper
Carl Popper's picture

Communism is completely different from capitalism.  

 

You see in capitalism man exploits man but in communism it is the complete opposite. 

Tue, 03/25/2014 - 11:46 | 4590207 Quinvarius
Quinvarius's picture

It amuses me to see Western thought on Chinese liquidity.  There is no concept that liquidity is impaired by the gold takedown.  They seem to get the concept of Commodity Funded Deals as being bad when prices drop.  But there is connection made between them being priced higher and systemic repair.  The Chinese don't have to print nearly as much if they fight back against the artifical volatilty and fake temporary prices caused by Western Banks' economic warfare.  For deades banks had gold agreements to stop this kind of nonsense.  Now they just let the banking system throw grenades into the system and then jump on them in self destructive fury.  Destruction is easy and profitable for the execs in the very short term.

Tue, 03/25/2014 - 11:53 | 4590277 Itchy and Scratchy
Itchy and Scratchy's picture

10 dolla I luv u long time!

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