CNBC has a very good article on China’s easing intervention. The key takeaway from the article is this:
Growth in Chinaâ€™s economy has slowed for six straight quarters, and authorities have battled the slowdown with two interest-rate cuts and three cuts to banksâ€™ reserve requirement ratios since November last year. But the effects of the measures have yet to show up in the numbersâ€”this week’s data on trade and industrial output for August turned out surprisingly weak.
The latest stimulus from regulators, in the form of an infrastructure program worth $157 billion announced last week, may have prompted a rally in Chinese stocks but Straszheim argues that the measure is too little, too late.
â€œThis $150 billion, about a trillion yuan, that they announced on infrastructure is spread over four years. That’s only 250 billion (yuan) a year. That’s a half of 1 percent of GDP,â€ he said.
â€œThe stimulus package they did in 08-09, was 5 percent of GDP, two years running. They’ve got to do more. I think they will do more. But, it cannot offset the weakness that is being thrust upon China because of weakness in its export markets overseas.â€
How much more is needed? Looking at Shanghai Composite Index, the recent high was at 2007 @5,900 levels. The stimulus package of 08-09 could only bring levels up to 3,400, form a 2008 low of 1720 levels. While S&P500 and DAX have mostly recovered from the great decline in 2008, the Composite Index is still languishing between 2,000 to 2,500 in 2012. Looking at the trend, will a 250 billion yuan yearly warchest be enough to bring Shanghai Composite Index above 5,000 again?
Via – CNBC
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