China Economic Comment: Reading on the Politburo meeting: modestly positive tone, waiting for more tangibles

Research evidence excerpt

China Economic Comment: Reading on the Politburo meeting: modestly positive tone, waiting for more tangibles

authorities rolled out a round of property loosening and the statement had only one line

on the sector which was similar to the line today.

On regulation over private companies, we think the message can be interpreted

in two ways. The healthy development part may indicate a more growth-friendly

stance. But continuation of the anti-involution drive indicated more measures. Anti-

involution is a large umbrella which can cover many things. We continue to believe the

peak of the latest round of regulatory tightening is behind us. The turning point was the

press conference of SAMR during which 3 officials indicated the campaign “achieved

preliminary results”. This statement is rarely used when a round of campaign is in an

early stage or at the peak. July saw relatively few new investigations. The penalties

imposed on specific companies indicate the case against companies is coming to an end.

The view that administrative policy stance is important doesn’t mean fiscal and

monetary policies are not important. One needs incentives, approvals and money to

get things done. The brakes and accelerator both need to be adjusted to get the car

moving again; there is no choice to make between these. On fiscal policy the near-term

focus is to make sure fiscal spending and bond issuance catch up with the schedule.

There is no obvious intention to increase the annual quotas though this can become

necessary later in the year as a second step of loosening. The bar to adjust the narrowly

defined 4% on budget deficit is high. If there are additional adjustments, they are more

likely to be in the form of various special purpose bonds which don’t affect the budget

deficit level.