Analysis: As China's economic pain increases, so does reform effort

Sun Jul 14, 2013 5:22pm EDT
 
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By Kevin Yao

BEIJING (Reuters) - China's reform-minded leaders are more willing than ever to raise the pain threshold for the economy to push through long-term reforms, despite a protracted slowdown that has sparked calls for looser monetary policy.

Grim trade data for June last week fanned market talk of fresh steps to support an economy heading for its weakest growth this year in more than two decades. They increased after remarks by Premier Li Keqiang that the government will safeguard the "lower limits" for economic growth and employment and could be fuelled further by GDP data later on Monday.

But Beijing has no plans to budge.

Financial markets may have underestimated the leadership's tolerance for slower growth as it pushes to wean the economy off a reliance on exports and investment with reforms and deregulation to encourage more consumption, analysts say.

"The focus is still on reforms," said Xu Hongcai, senior economist at the China Centre for International Economic Exchanges (CCIEE), a well-connected think-tank in Beijing.

"The chances of a cut in interest rates or banks' reserve ratio look slim," Xu said. "Previously, when the economy was not good, local officials held out their hands for money from the central government. But now they have to embrace reforms as no money will be given."

Finance Minister Lou Jiwei appeared to back that view in comments last week, suggesting the government would not step in as it has done in the past.

"Structural adjustment is a painful thing," Lou was quoted by the semi-official China News Service as saying on the sidelines of U.S.-China talks in Washington. "It's impossible to adjust structures if you still want to feel very comfortable and maintain a very high growth rate."   Continued...

 
Construction workers wait for a bus after their workday at Pudong financial district in Shanghai July 8, 2013. China's resolve to revamp its economy for the long-term good will be tested this month when a slew of data show growth is grinding towards a 23-year low, with no recovery in sight. REUTERS/Carlos Barria