--Beijing is now focusing on promoting growth, but wants to avoid a blowout of 2009-10 proportions
--There is no way to estimate the scale, but the effects should be clear by July-August--Watch fiscal spending, big project starts and long-term loan growth
Just when everyone was getting excited about China‟s new stimulus package,Xinhua, the state news agency, came out with a statement to say there was no stimulus. As we laid out a few days ago, the collection of policies announced over the last few days certainly quacks like a mini-stimulus package (On the Ground, 28 May 2012, "China – The 2012-13 ‘mini-me stimulus"). But the senior leadership is clearly also worried that people will interpret these policies as a doubling down of China‟s boom-bust, investment-heavy growth model. This time, the emphasis is on allowing companies to do projects in line with the 12th Five Year Plan: fewer rural roads built by over-leveraged local government investment vehicles, more nuclear plants built by entities with cash flow. That‘s the aspiration, anyway.
The scale of the latest stimulus package is smaller than the CNY 4trn of the previous one (which turned out to be closer to CNY 10trn, but that‟s another story), but the circumstances are very different. A central government contact tells us that the April 2012 economic data shocked the leadership after what seemed like a solid Q1. The May PMI print of 50.4 is within spitting distance of contractionary territory. But China has not lost 20-30mn jobs this time, as it did in Q4-2008. In fact, the limited data publicly available on the labour market suggests that it was still very strong in Q1 (also evidenced by our survey: On the Ground, 5 March 2012, "China – More than 200 clients talk wages"). Chart 1 shows the ratio of employees sought to job-seekers, based on data collected from some 100 cities by the Ministry of Human Resources. Clearly, though, jobs are lost after an economic slowdown has gone on for some time – so now is the time for Beijing to shift gears.
The labour market is tighter than in Q4-2008