http://www.afr.com/news/world/asia/zhou-says-china-has-room-for-monetary-easing-may-not-use-it-20150418-1mo4ek Zhou Says China Has Room for Monetary Easing; May Not Use It April 18, 2015 0 Share 0 Pin 0 Share 0 Share Source: Bloomberg Markets China’s central bank Governor Zhou Xiaochuan said the world’s second-largest economy has scope compared with other nations to ease its monetary policies though won’t necessarily take advantage of it. “We have room in the reserve ratio and our interest rates are not zero yet,” Zhou, 67, said in a brief interview Saturday in Washington, where he was attending the International Monetary Fund’s spring meetings. “There is definitely room. But we need to adjust carefully. It doesn’t mean we will have to utilize it or fully utilize the room.” Banks including Macquarie Group Ltd. and HSBC Holdings Plc flagged the need for further stimulus after China’s economy expanded last quarter at the slowest pace since 2009 and industrial-production gains in March were the slowest since November 2008. An economy-wide inflation indicator turned negative last quarter for the first time since 2009, suggesting room for easing. Premier Li Keqiang last month said policy makers will step in to support the economy if jobs and wages are hurt by the slowdown, while Zhou previously said the nation needs to be vigilant about deflation risks and policy makers have “room to act.” The People’s Bank of China made its first interest-rate cut in two years in November and followed with another reduction announced in February, with the one-year lending rate now at 5.35 percent and one-year deposit rate at 2.5 percent. It also lowered banks’ reserve-ratio requirements in February. China is battling a property slump, excess industrial capacity, local-government debt and capital outflows, with the economy last year expanding at the slowest pace since 1990. The nation is among at least 30 countries that have loosened monetary policy this year as lower commodity prices give room to stimulate. Gross domestic product rose 7 percent in the three months through March from a year earlier, while industrial production last month increased by 5.6 percent, after a 6.8 percent rise in the first two months of the year. In a statement at the meetings in Washington taking place from Friday to Sunday, Zhou said that while China’s economic expansion is slowing, it’s still within a “reasonable range” and employment growth remains stable. He reiterated that China will pursue “prudent” monetary policy and said it will adjust “adaptively” according to the economy and inflation, according to the statement posted on the PBOC’s website. One hurdle that may curb the extent of any monetary stimulus is China’s surging stock market, which took off after the central bank cut interest rates in November. Another may be reticence to reignite debt risks and a repeat of the 2009 stimulus binge. Zhou and the Chinese government have been pressing the IMF to include the yuan in its Special Drawing Rights basket of currencies regarded as global reserve currencies. IMF Managing Director Christine Lagarde has said that “we welcome and share this objective.” Zhou, in Saturday’s interview, declined to speculate on when the yuan, also called the renminbi, would be added to the basket. The IMF this week indicated it may be abandoning its long-held view that the Chinese exchange rate is undervalued . “The market should be the judge of the renminbi’s value rather than us,” Zhou said. Source: Bloomberg Markets
According to the theory of Professor Lin Yi-fu, it is important for an economy to strictly follow the comparative advantage determined by the endowment of each stage of economic development, making full use of the market mechanism and the government intervention. Thus the speed of accumulation of capital, upgrade of endowment structure, upgrade of industrial structure and economic growth will reach the fastest. Upgrade of industrial structure is determined by capital accumulation and upgrade of endowment structure. To reflect the endowment structure, capital stock per capita is a significant indicator. Taiwan’s gold periods of economic growth have seen the promotion of capital stock per capita. It is this promotion that resulted in the upgrade of Taiwan’s industrial structure.
The classic theory of federalism suggests that local governments, when granted with more autonomy and resources, will be able to make better decision and improve social wellbeing. The arguments are rooted in two beliefs. First, as Hayek (1945) points up, local governments generally are endowed with information advantage over the national government in knowing the nature and changes of social tastes and preferences. Thus, through sorting and matching the resources with locally indigenous preferences, more social benefits can be delivered (i.e. throughhigher demand efficiency). Second, the federalism allows governance experiments in the localities and by design promotes inter-jurisdictional competition and mutual learning. Presumably, the competition and learning helps the local governments to make decisions for desirable social outcomes. The classic theory of federalism has been greeted with mixed empirical evidence in the developing countries. The parameters of fiscal governance vary significantly and the residents often fail to vote with their feet due to residence restrictions and social imperatives. Therefore, the positive outcomes presumably derived from the federalism arrangements may find hard to be substantiated or not uncommonly, go sour in the opposite direction. The second generation of federalism abandons the assumption that governments are benevolent, but focuses on their different incentives to perform. Students contend that federalism is likely to cause mixed kinds of outcomescontingent on how local incentives are structured. It is likely that local governments, when granted with more authorities and resources, may choose to maximize certain kinds of benefits over others, whichmay be linked to some unpleasant social outcomes. Empirical evidence exists in this regard. For instance, a higher level of fiscal decentralization in chinaseem conducive toslower economic development due to its unique stage of economic development. The essential question to ask is in what social dimensions, do fiscal decentralization creates what kinds of social outcomes?
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