2023-07-24 06:44:02
Economists expect the Communist Party’s leadership to hold off on a large-scale stimulus package amid signs of a slowdown in China’s economy. It will likely be a disappointment for financial markets, which expect a strong response from the authorities.
Economic policy is usually the focus of the Politburo meeting in July. Although the conference itself rarely announces specific measures, the tone and language of the policies presented in the statement provide important clues for future responses by the Chinese authorities.
Economists say the meeting will send a signal to support the economy, which might lead to more fiscal spending, smaller interest rate cuts and further easing of property policy. It is also pointed out that support for the private sector is likely to become one of the priority agenda items.
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China’s Slowing Momentum
China’s GDP growth momentum slowed in the second quarter
Source: China’s National Bureau of Statistics, Bloomberg
Pang Ming, chief Greater China economist and head of research at Jones Lang LaSalle, said the Politburo meeting “would see no ‘strong drug treatment’ to the economy,” adding, “We won’t get the aggressive stimulus that the market is hoping for.”
Chinese authorities have been wary of stimulus measures of the scale they have used during past economic downturns to avoid overstimulating the property market and fueling the debt burdens of already heavily borrowed local governments. The government emphasizes improving the quality of growth rather than the pace of economic expansion. It has also set a modest gross domestic product (GDP) growth target of around 5% for this year, and is still on track to achieve it.
Actions economists expect for July’s Politburo meeting include:
Fiscal policy
While many believe that more fiscal policy support is needed to boost sluggish domestic demand, China is unlikely to resort to unconventional measures such as issuing special bonds. Wu Yu, chief economist at Yangtze Securities, who has advised the leadership, said at a recent conference that such measures would only be used in extreme circumstances or national emergencies.
Pang of Jones Lang LaSalle said Communist Party leaders are likely to push for an accelerated issuance of specialized bonds focused on financing infrastructure rather than raising the budget deficit target of 3% of GDP this year. There is also a possibility that policy banks will announce measures such as loans for infrastructure projects. Eliminating the risks associated with local government debt is also likely to be a big focus, said Ming Ming, chief economist at CITIC Securities.
China’s Local Governments May Accelerate Bond Sale
Issuance of infrastructure bonds slower than previous year since May
Source: Bloomberg
Financial Policy
Economists expect the Politburo meeting to portend modest monetary easing, with central bank officials saying they are ready for more easing and hinting at measures including lowering the reserve requirement ratio.
UBS Group expects a 0.1 percentage point rate cut and a 0.25 percentage point cut in the reserve requirement ratio in the second half of July-December. Wu of the Yangtze River Securities also sees a rate cut in the third quarter (July-September) as possible.
real estate policy
General Secretary Xi Jinping has said that “housing is not an object of speculation,” and although the party leadership is likely to follow suit, it is possible that it may suggest further relaxation of real estate regulations. The recovery in the market has been short-lived and house prices have turned downward, indicating the need for more support.
Bloomberg News reports that policymakers are considering easing some restrictions on home purchases in big cities. Aggressive easing is unlikely in Tier 1 cities, UBS said, but officials might ease some purchase restrictions in smaller cities and reduce the down payment ratio for buyers who already have a mortgage, helping distressed housing projects and property developers get better financing.
consumer arousal
Citic Securities’ Ming said a comprehensive strategy is needed to boost consumer spending. He expects policies around consumption to be one of the main focuses of the Politburo meeting.
Retail sales rose in June, but growth was slower than expected, threatening the sustainability of the economic recovery. So far, the government’s response has been small, showing policies to stimulate consumption of home appliances, furniture and cars, but investors are hoping for more substantive policies.
Cooling Consumer Spending
China’s retail sales growth has decelerated sharply in recent months
Source: National Bureau of Statistics
Private business support
Chinese authorities end nearly two years of crackdown on the tech industry. “We need a stronger signal to restore confidence,” said Hu Weijun, head of China economics at Macquarie Group, which pledged to improve the environment for private companies last week.
Private companies are still feeling the effects of years of draconian coronavirus measures and regulatory crackdowns. Mr. Wu of the Yangtze River Securities said that there is a need to clarify the role of private companies and private property in the Communist Party’s policies. He says that if the legal and institutional framework specifies areas that are not allowed to be operated by private companies, he can expand his business without fear.
“The party leadership is aware of the actual economic situation,” Wu said. “The leadership will not rely on just one policy, especially as it needs to achieve its growth target of around 5% this year,” he said, predicting stronger policies across fiscal, monetary, real estate and industrial sectors.
news-rsf-original-reference paywall">Original title:China’s Top Leaders Likely to Disappoint on Big Bang Stimulus(excerpt)
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