Monday, January 24

China’s key economic meeting to focus on supporting growth

China’s top leaders will meet this week to decide the economic agenda for 2022, and analysts expect the focus to shift to support growth from deleveraging and regulatory crackdowns.

The annual Central Economic Work Conference, which is attended by members of the Politburo Standing Committee, including President Xi Jinping, will be closely watched for signs that reinforce the move toward more flexible economic policy signaled by a Politburo meeting earlier this week. pass.

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“This year, China has done more on risk prevention with a focus on the long term, and next year’s policy will undoubtedly lean towards supporting growth,” according to He Wei, analyst at Gavekal Dragonomics.

The gathering comes as the economy is slowing down due to worsening housing market downturn, weak consumer growth and repeated outbreaks of Covid-19, which are hurting businesses and confidence. Economists forecast growth to slow to 3.1% in the current quarter, a sharp slowdown from 7.9% in the April-June period and 4.9% in the latest quarter.

Traders are looking for clues as to how far China will go to ease monetary and fiscal policies to boost the economy, after the central bank acted to inject 1.2 trillion yuan ($ 188 billion) of liquidity into financial markets and governments. Locals accelerated borrowing towards the end of this year.

China’s financial markets are already rebounding from more favorable policy expectations, with everything from equities to the nation’s dollar and sovereign bonds surging in recent days. There are strong signs that investors are turning to Chinese assets after being deterred by regulatory cracks and an economic slowdown, with the benchmark CSI 300 capped on its biggest three-day gain since mid-May on Thursday.

2022 is also a year of profound political importance, as the Communist Party will convene the XX National Congress to decide the nation’s leaders for the next five years.

“Past experiences suggest that Beijing would strive to exceed the growth target in a year of political shakeup,” Morgan Stanley economists led by Robin Xing said in a note on Monday.

While the official target for gross domestic product growth next year will only be revealed at the annual meeting of parliament in March 2022, economists expect the conference to send signals that authorities will do more to ensure growth reaches around 5%. That would be a step below the 8% forecast for this year, but still solid enough for China to meet its goal of doubling the size of the economy by 2035.

The dates of the meeting have not been officially announced, but officials from the Communist Party, the government and the central bank are scheduled to explain the decisions of the meeting on Saturday morning, indicating that it should be over by then.

These are the things that analysts have been waiting for since the meeting:

Macro policy
A growing number of economists now project that the People’s Bank of China will move to cut policy interest rates next year, with some saying that the reduction in the reserve requirement rate will make the benchmark interest rate lower. get off as early as this month. There is also a growing consensus that the People’s Bank of China will be much more flexible in driving credit growth, after credit expansion slowed markedly this year.

Any mention of a push for more public spending or investment in infrastructure will also be critical, as fiscal policy has been tight this year and local governments have been slow to borrow and spend. UBS Group AG expects a “clear push for faster public spending, an upfront charge and more efficient use of local government special bonds, and more tax and fee cuts,” economists led by Wang Tao said in a note.

However, the Politburo meeting’s focus on the “sustainability” of public finances could mean that authorities will remain cautious about fiscal stimulus, as revenues from land sales are projected to contract next year, according to He de Gavekal.

Deleveraging campaign
China’s effort to curb rising debt due to the pandemic has led to the macroeconomic leverage ratio, or debt-to-GDP ratio, falling to 264.8% at the end of September, from a high of 271.2 % per year. before, according to data from the National Institution of Finance and Development.

Overall, credit growth is expected to accelerate dramatically in the first half of next year, and analysts debate the extent to which authorities will ease the requirements for mortgage applications and loans to developers. Xing Zhaopeng, China Senior Strategist at Australia & New Zealand Banking Group Ltd., said the authorities are likely to allow the debt-to-GDP ratio to rise by 4 percentage points.

“In general, new credit could reach the level in 2020, which would be huge,” Xing said. “Mortgage loans will be relaxed on the premise of not shooting house prices through the roof.”

Property facilitation
The real estate sector, which helped prop up China’s economy in previous recessions, will be key to growth prospects next year. While Beijing is unlikely to return to its old playbook, authorities are expected to ease some ownership restrictions to avoid a hard landing of the sector.

At the Politburo preparatory meeting last week, top leaders pledged to “support the commercial housing market to better meet buyers’ reasonable housing needs,” while removing the phrase “houses are for living, not to speculate “from the statement. With economists anticipating some relaxation in areas including mortgages and developer financing, the conference should provide investors with more clarity on the extent of possible relaxation.

Regulatory repression
Whether China will continue its crackdown on industries ranging from steel to education to the internet remains a matter of debate, especially as downward pressure on growth mounts. Any clarity will be welcomed by investors, who have seen markets churning and billions of dollars lost after China launched a series of campaigns this year.

Some economists hope for a shift in focus from regulatory crackdown to growth stabilization, while others argue that regulatory tightening will continue amid China’s quest for a more sustainable development model with “common prosperity” at the core.

© 2021 Bloomberg LP

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