Chinese central banker's HK speech is important
Governor Pan is almost the spokesperson of Chinese economy now
Governor Pan Gongsheng, the head of PBoC (China’s central bank), made an opening speech at Hong Kong’s Asia Financial Forum last week.
This is an interesting speech with some unusual messaging. It’s especially interesting when you realize that Governor Pan may be the highest level in China officialdom from whom you can hear candid talk right now. I will discuss more about this at the end of the article, but for now, let’s look at some interesting points of the speech itself.
The most notable lines I have found from the speech are the ones about consumption.
When diagnosing China’s internal economic problems, he only mentioned:
Internally, we still face problems such as insufficient domestic demand, especially consumption demand, weak social expectations, low price levels, etc.
Please note that every problem he mentioned was no more than a different way to say “insufficient domestic demand”. He was only repeating himself here.
He then talked about priorities and solutions for this problem:
It was made clear at the Central Economic Work Conference convened last month that we should focus on boosting domestic demand, especially the consumption demand of residents, and vigorously boosting consumption would be the top priority of the economic work for this year. The priority of macroeconomic policies should shift from promoting more investment in the past to promoting both consumption and investment, with more importance attached to consumption. By increasing residents' income, enhancing consumption subsidy support, innovating consumption supply, and improving social security, we will effectively expand consumption, give better play to the role of consumption in driving up economic growth, and promote high-quality development of the Chinese economy.
As we have pointed out before, even before CEWC, China’s top leadership has picked a side, which has just been confirmed by Pan’s speech. He was being unequivocal about the following things:
He recognized that China’s economic policy focus in the past was on promoting “investment.”
He recognized that now the strategic goal is to make the economy more balanced between investment and consumption.
He also didn’t mince words that the immediate priority right now is to boost consumption, as it’s clearly the weaker half in the intended “balance”.
There are many policies that are at our disposal, with “increasing residents’ income” as number one.
When I talked to investors recently, I sensed that most people are still skeptical about whether the government is willing to or is able to boost domestic consumption. I believe these concerns are misplaced. When the top leadership sets their minds around a key decision, the implementation part is actually the easier part.
I can instantly think of many measures. For instance, subsidies for boosting childbirth are very likely on the menu, not least because some local governments have had some successful experiments. Last week, in my personal newsletter
I commented on a small city called Tianmen’s success in dramatically boosting birth rates by issuing sufficiently generous birth subsidies to residents.I am quite certain that such local successes must be on the tables of policymakers, especially when boosting birth rates can generate a long “life-cycle” of further consumption when the children grow up.
Moreover, I am also quite impressed with the breadth of the topics touched by Pan. He didn’t just address monetary policies, which are really his only area, but more diverse topics, including the aforementioned “investment vs consumption balance”, fiscal policies, government debts, real estate and trade policies. This is quite impressive for a mere head of the People’s Bank of China to opine on. Again, I comment on this phenonemon more in-depth later.
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