It’s always a fine line for authorities. There are times when avoiding intervention is more effective than intervention. That’s particularly true when the efficacy of whatever proposed policy is in doubt. If you don’t know for sure that it will work, maybe don’t do it. There are often grave risks associated with plunging forward recklessly.
In other words, officials can and do just make things worse. By pushing the envelope rather than calm markets or the economy they can further enflame them. Crises are never so binary – until they are over. Heading into one, there is so much ambiguity that can either work for you or against you.
Government desperation is one of those where it makes things worse. People may doubt there is a downside or how deep it might be, but if authorities are obviously unsettled that can’t be a good sign. From the official perspective, perhaps there just aren’t any alternatives.
China last night:
“There is desperation among regulators, and sometimes muddled polices are difficult to avoid under this kind of pressure,” said Jiang Liangqing, a Beijing-based fund manager at Ruisen Capital Management. “Investors are voting with their feet.”
In the last week, things have gone from bad to worse but all in the future tense. Right now, there isn’t any sign China’s economy is on the verge of collapse or even contraction. But the number of negative factors which could push it that far are piling up; mostly in the monetary therefore financial system.
The latest “desperation among regulators” this time comes the country’s Banking and Insurance Regulatory Commission. Guo Shuqing, the chairman of the government panel, reportedly said yesterday that one-third of new loans created by the banking sector must go to non-state firms. Only one-quarter has.
On the surface, it sounds like very little, the usual Communist infatuation with top-down economic targets. But at this moment, the implication taken together with everything else suggests an almost bailout. Monetary tightness combined with possible further economic weakness could push China’s corporate sector into the abyss and it appears Chinese officials at the top are really worried about it.
