China and Japan need structural reform - Bank of Singapore

By Imogene Wong

Added 5th April 2016

Bank of Singapore chief economist Richard Jerram said while the Chinese and Japanese financial markets might respond well to short-term stimulus, there is too little focus on structural reform.

China and Japan need structural reform - Bank of Singapore

Although both the official and non-official China Purchasing Managers' Index, announced on Friday, rebounded and showed solid gains in March largely thanks to policy stimulus, Jerram argued the current growth model is not sustainable.

China has been rolling out fiscal or monetary policies such as lower interest rates, cuts in reserve requirements and a weaker exchange rate, on top of government infrastructure spending, to boost slowing economic growth.

However, Jerram believed “growth… needs to be derived from domestic productivity gains, rather than endless credit expansion,” he said in a report on Friday.

On the other hand, Japan seems to be tracking China, as a less positive view by manufacturers, primarily due to a strengthening yen, is leading to talk of renewed policy stimulus.

Jerram doubted if such a move was necessary. “There is not much evidence that Japan’s economy is underperforming potential,” as the labour market has been steadily tightening, while overall business confidence has remained in the positive territory.

Both countries showed similarities in “difficulty in dealing with a structural slowdown in growth, and the problems in transitioning to a consumer-oriented, domestic demand-driven system,” he said.

And the “root causes” simply cannot be tackled by the easy way of mere stimulus package, Jerram argued.

Instead, he believed the solutions lie on Japanese Prime Minister Shinzo Abe’s proposed Third Arrow, or China’s reforms outlined at the Third Plenum in late 2013, although there are challenges to pushing through the reforms.

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