Column International Exchange 2012.09.12
◇ There are three factors driving the economic slowdown that has occurred during the first half of this year: (i) the restrictions on real estate transactions; (ii) the continuation of monetary tightening from last year until March of this year; and (iii) the reduction in external demand. Among other factors, the restrictions on real estate transactions have negatively affected both the "upstream" industry sector and the durable consumables-related sector, and represent the greatest factor driving the recent economic slowdown.
◇ Looking forward, the monetary easing that started in April and the stability of the employment situation since the beginning of this year are likely to become factors boosting the economy in the future. Thanks to monetary easing, infrastructure construction has begun to increase and the real estate market has started to pick up. Given these developments, many central government officials and local economists, among others, believe that in and after the third quarter, the economy will be recovering from the cyclical bottom reached in the second quarter.
◇ With respect to the restrictions on real estate transactions, it is considered difficult to lift them early in view of certain political factors and the magnitude of economic side effects. Assuming the effect of the economic slowdown continues, the pace of the recovery is still expected to be moderate in future.
◇ The minimum lending interest rate was reduced when interest rates were lowered in June and July. At this point in time, the effects of this reduction on major Chinese state-owned banks are likely to be insignificant; however, moves to discount lending interest rates are expected to accelerate gradually in the medium run, and most economists believe that financial institutions will find it more difficult to earn revenues.
(The report was originally issued in Japanese on August 13, 2012)