I picked the title of this post from the Reuter’s headline story “China needs 7.2 percent GDP growth for employment: premier“.
Curiously the same story now appears under the recycled headline China premier warns against loose money policies, a statement (in isolation) that I would agree with.
Let’s take a look at the details.
China needs to sustain economic growth of 7.2 percent to ensure a stable job market, Premier Li Keqiang said as he warned the government against further expanding already loose money policies.
In one of the few occasions when a top official has specified the minimum level of growth needed for employment, Li said calculations show China’s economy must grow 7.2 percent annually to create 10 million jobs a year.
That would cap the urban unemployment rate at around 4 percent, he said.
“We want to stabilize economic growth because we need to guarantee employment essentially,” Li was quoted by the Workers’ Daily as saying on Monday
Yet even as authorities keep an eye on growth, Li sounded a warning on easy credit supply, which he said had topped 100 trillion yuan ($16.4 trillion) in the world’s second-biggest economy.
“Our outstanding M2 money supply has at the end of March exceeded 100 trillion yuan, and that is already twice the size of our gross domestic product (GDP),” Li was quoting as saying.
“In other words, there is already a lot of money in the ‘pool’; to print more money may lead to inflation.”
Perils of Loose Money
I certainly concur with Li on the perils of loose money, while also pointing out three things.
- China’s monetary policy is among the loosest in the world
- Credit growth is insane
- China is not going to grow at 7.2%
The New York Times reports Chinese Leader’s Economic Plan Tests Goal to Fortify Party Power
China’s president, Xi Jinping, is about to plunge the country and himself into a risky experiment: an attempt to carry out market-driven economic overhauls while reinforcing the Communist Party’s pillars of political and ideological control. This mixed agenda has magnified doubts about whether he can deliver on his promises of transformation.
At a meeting, or plenum, of the party’s Central Committee that starts Saturday, Mr. Xi will enumerate his plans for an economic overhaul, and state-run news media has promoted the event as a turning point. Mr. Xi and Prime Minister Li Keqiang have indicated that they want to nurture healthy, sustained growth by encouraging more market competition, private business, financial liberalization and individual consumption, leaning away from the state-focused policies of the past decade.
Yet, Mr. Xi wants to achieve this economic shift away from the state while strengthening the ruling party, which derives power and wealth from its extensive role in the economy.
“There are inescapable contradictions that Xi Jinping will have to face,” said Wu Wei, a former aide to central party leaders who was involved in planning China’s market overhauls in the 1980s.
“In one hand, they’re holding up the leftist banner. On the other hand, they say there must be reform,” Mr. Wu said. “They don’t show any desire to take on political issues, but if you don’t take on issues at the political level, most of these economic reform measures will fall apart before they’re completed.”
Holding up the leftist banner, promising market reforms, and expecting 7.2% growth on top of it, is quite silly.
It Can’t Be Done.
Mike “Mish” Shedlock