PBOC's Pan Telling Hard, Uncomfortable Truths

(MENAFN- Asia Times) At a moment of peak uncertainty about the direction of China's economy, People's Bank of China (PBOC) Governor Pan Gongsheng is surprising many by speaking in unusually direct terms.

Some of the ambiguity of the“Xi Jinping thought” era is a government big on soaring reform rhetoric and fuzzy on nuts-and-bolts specifics. It's here where Pan's burst of economic realpolitik is both refreshing and telling.

The bottom-line message : kindly give China some space and tolerance to pull off modern history's greatest effort to transition away from property and infrastructure to new drivers of economic growth. Oh, and that period of 8-10% annual growth? It's not coming back.

“The traditional model of relying heavily on infrastructure and real estate might generate higher growth, but it would also delay structural adjustment and undermine growth sustainability,” Pan told bankers in Hong Kong on Tuesday (November 28).

He added that“the ongoing economic transformation will be a long and difficult journey. But it's a journey we must take.”

Pan went on to say that“China's real estate sector is searching for a new equilibrium” to achieve
“healthy and sustainable growth” of the“high-quality” variety.

Nor did Pan shy from discussing the biggest potential cracks in China's financial system. He admitted, for example, that financially fragile regions in the west and north of the country may have“difficulties servicing local government debts.” Expect more defaults, in other words.

Such off-script admissions of turbulence to come are relatively rare in official Communist Party circles. Normally, the top-down impulse in the Xi era has been to project an image of economic omniscience and omnipotence. As such, Pan's foray into straight talk is useful, intriguing and timely.

On Thursday, China's
National Bureau of Statistics released fresh signs that the manufacturing and services sectors shrank in November, fanning expectations for increased state support as the economy faces intensifying headwinds.

The manufacturing purchasing managers index dropped to 49.4 while non-manufacturing activity slid to weaker than expected 50.2.

Manufacturing data is down in a slowing Chinese economy. Photo: Asia Times Files / Imaginechina via AFP / Liang Xiaopeng

Granted, central bankers as a profession tend to speak in vague and non-committal ways. Obfuscation, in other words, is a monetary policymaker's tool - their modus operandi - to keep all options open at all times.

A top practitioner of the discipline was Alan Greenspan , who chaired the US Federal Reserve from 1987 to 2006. As he once joked to a business forum:“If I've made myself too clear, you must have misunderstood me.”

Yet Pan is hardly playing rhetorical games as he telegraphs a long, bumpy road ahead. Naturally, this had PBOC watchers wondering if a new, more activist monetary strategy might be in store in Beijing.


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