Hang Seng believes Beijing stimulus moves have failed
Beijing's attempt to reflate the mainland's economy by private consumption has failed, according to Hang Seng Bank.
'Several interest rate cuts and higher government spending . . . have not boosted private consumption,' the bank said in its Economic Monthly.
Hang Seng Bank said the policy was a move in the right direction but would take a long time to materialise and would be moderated by the reforms of state-owned enterprises and the social security system.
'The current reforms have raised concerns [among consumers] about the stability of future income,' the report said.
The bank said the lack of a buoyant consumer-credit market had also contributed to weak consumer spending.
It said the government had recognised the inadequacies of previous policies in stimulating private consumption and had stepped up efforts to boost spending directly.
Government initiatives include stimulating stock market activity, raising the salary of civil servants by 30 per cent, increasing allowances for the unemployed and the retired as well as urging local governments to reduce levies on farmers.
The bank said the salary increase would benefit 40 million workers and could be a first step in reducing concerns regarding income stability.
Hang Seng Bank said that, with the urban areas already saturated with household electrical appliances, the rural market would provide room for growth.
However, the government needed to address the imbalance in power consumption between the rural and urban areas.
The report said the mainland's transition to a more market-orientated economy had entered a critical period, and the government was facing a dilemma in balancing between its short-term growth target and long-term economic health.