China debt-fueled stimulus may lead to recession - People's Daily
A People’s Daily article published yesterday showed that China’s leadership is trying to make a grand shift in the nation’s economic policies in a bid to say goodbye to debt fuelled growth.
The People's Daily, official paper of the ruling Communist party, in a question and answer interview quoted the person as saying excessive credit growth could heighten risks and trigger a financial crisis if not controlled properly.
"Trees cannot grow to the sky. High leverage will inevitably bring about high risks, which could lead to a systemic financial crisis, negative economic growth and even wipe out ordinary people's savings," the person, who was not named, said in response to a question on whether stimulus should be used in future economic policy.
"We should completely abandon the illusion of reducing leverage by loosing monetary conditions to help accelerate economic growth."
China's economic trend in the coming years will be "L-shaped", rather than "U-shaped", and definitely not "V-shaped", due to weak demand and overcapacity, the paper said.
Chinese officials and state media have since sought to talk up the economy in a bid to shore up investor confidence following recent stock and currency market turmoil.
But the People's Daily report said while much of the growth was investment-driven, structural problems persist, suggesting it could take many years before new engines of growth begin to lead growth.
China April inflation data sharpens debate on need for more easing
China's consumer inflation remained modest in April, while producer prices' four-year slump moderated as commodity prices rebounded, easing concerns about deflationary risks to the world's second-largest economy.
But analysts disagreed on whether the price trends alone are compelling enough for the central bank to shift to a more cautious stance on interest rate cuts just yet, after lowering them six times since late 2014.
Strong March data had raised hopes the economy was bottoming out from a prolonged slump -- possibly allowing the People's Bank of China (PBOC) to take its foot off the gas -- but mixed April data so far and surging debt levels have fueled doubts about whether any recovery will prove sustainable.
The consumer price index (CPI) rose 2.3 percent in April from a year earlier, largely due to a spike in food prices, particularly pork. The reading has now been at the same level for three months in a row, and April defied market expectations for a slight pick-up in inflationary pressures.
Non-food prices rose just 1.1 percent, ticking up from March, but again not showing a build in price pressures that would be expected if the broader economy was suddenly perking up
Yen pressured after Japan's verbal warning, dollar gains traction
The yen nursed broad losses on Tuesday, beaten back from recent peaks following warnings by Japan that it was prepared to step in and weaken the currency.
The dollar rose roughly 0.4 percent to a 12-day high of 108.795 yen, after surging more than 1 percent on Monday. The U.S. currency had tumbled to an 18-month low of 105.55 yen last week after the Bank of Japan stood pat on monetary policy.
In the wake of the yen's surge, Finance Minister Taro Aso on Monday said Tokyo is ready to intervene to weaken the currency if moves are volatile enough to hurt the country's trade and economy. Aso reiterated the message on Tuesday.
The dollar/yen pair did not react much on Monday when Aso made his comments during the Asian trading session. But the Japanese minister's warning had a greater yen-weakening impact later in the day during the European and North American trading hours.
Oil prices dip on brimming crude stocks, Canada fires move away from oil sands
Oil prices fell early on Tuesday as Canadian wildfires that have knocked out over 1 million barrels worth of daily crude capacity moved away from production facilities, while brimming inventories and a strong U.S. dollar weighed on markets.
U.S. crude futures were trading at $43.09 per barrel at 0040 GMT, down 35 cents from their last settlement.
"A reversal in the U.S.-dollar will continue to weigh on commodity markets. With concerns easing over Canadian oil supply disruptions, crude oil could come under additional pressure," ANZ Bank said.
A stronger dollar, in which oil is traded, makes fuel more expensive for countries using other currencies, potentially hitting demand.
Reference: Reuters, CNBC, Sout
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