China’s key economic meeting to focus on supporting growth
Analysts will be watching for info on its macro policy, deleveraging campaign, property easing and regulatory crackdown.
By Bloomberg News
10 Dec 2021 07:29
Image: Qilai Shen/Bloomberg
China’s top leaders are set to convene this week to decide the economic agenda for 2022, and analysts are expecting the focus to shift to supporting growth from deleveraging and regulatory crackdowns.
The annual Central Economic Work Conference, attended by members of the Politburo Standing Committee including President Xi Jinping, will be keenly watched for signs that reinforce the move to looser economic policy signaled by a Politburo meeting last week.
“This year China has done more work on preventing risks focusing on the longer term, and next year policy will no doubt be leaning toward supporting growth,” according to He Wei, an analyst at Gavekal Dragonomics.
The meeting comes as the economy is slowing due to a worsening property market slump, weak consumption growth, and repeated outbreaks of Covid-19 which are damaging businesses and confidence. Economists forecast growth to slow to 3.1% in the current quarter, a sharp deceleration from 7.9% in the April-June period and 4.9% in the last quarter.
Traders are searching for clues on how far China will go to loosen 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 local governments accelerated borrowing toward the end of this year.
China’s financial markets are already rallying on expectations of more supportive policies, with everything from stocks to the nation’s sovereign and dollar bonds climbing in recent days. There are strong signs investors are returning to Chinese assets after being deterred by regulatory crackdowns and an economic slowdown, with the benchmark CSI 300 Index capping its biggest three-day gain since mid-May on Thursday.
2022 is also a year of profound political significance, as the Communist Party is set to convene the 20th National Congress to decide the nation’s leaders for the next five years.
“Past experiences suggest that Beijing would strive to beat the growth target in a year of political reshuffle,” Morgan Stanley economists led by Robin Xing said in a note Monday.
While the official target for gross domestic product growth next year will only be revealed at the annual parliament meeting in March 2022, economists are expecting the conference to send signals that authorities will do more to ensure growth will reach around 5%. That would be a step down from the 8% forecast for this year, but still robust enough for China to achieve its goal of doubling the size of the economy by 2035.
The dates of the meeting haven’t been officially announced, but officials from the Communist Party, government and central bank are scheduled to explain the meetings’ decisions Saturday morning, indicating it should have finished by then.
Here are the things analysts are watching for from the meeting:
A growing number of economists now project the PBOC will move to cut policy interest rates next year, and some say the reduction in the reserve requirement ratio will drive the benchmark lending rate lower as soon as this month. There is also a rising consensus that the PBOC will be much more accommodative to fuel credit growth, after credit expansion slowed markedly this year.
Any mention of a push for more government spending or infrastructure investment 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, front-loading and more efficient use of special local government 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 still be cautious with fiscal stimulus, as revenue from land sales is projected to contract next year, according to Gavekal’s He.
China’s effort to rein in a surge of debt over the pandemic has led to the economy’s macro-leverage ratio, or the debt-to-GDP ratio, dropping to 264.8% at the end of September, down from a peak of 271.2% a year earlier, according to data from the National Institution for Finance & Development.
Credit growth is widely expected to accelerate sharply in the first half of next year, with analysts debating how much authorities will loosen requirements for mortgage applications and lending to property developers. Xing Zhaopeng, senior China strategist at Australia & New Zealand Banking Group Ltd., said authorities are likely to allow the debt-to-GDP ratio to rise by 4 percentage points.
“Overall new credit could reach the level in 2020, which would be huge,” said Xing. “Mortgage lending will be loosened on the premise of not triggering skyrocketing housing prices.”
The property sector, which helped prop up China’s economy in previous downturns, will be key to the growth outlook next year. While Beijing is unlikely to return to its old play-book, authorities are expected to dial back some property curbs in order to prevent a hard landing of the sector.
At the Politburo’s preparatory meeting last week, top leaders pledged to “support the commercial housing market to better meet buyer’s reasonable housing needs,” while deleting the phrase “houses are for living in, not for speculation” from the statement. With economists anticipating some loosening in areas including mortgages and developers’ financing, the conference should provide investors more clarity on the extent of the potential easing.
Whether China will continue with its crackdown on industries ranging from steel to education to the internet remains a subject of debate, especially as downward pressure on growth increases. Any clarity will be welcomed by investors, who have seen markets roiled and billions of dollars lost after China launched a series of campaigns this year.
Some economists are expecting a shift of focus away from regulatory crackdowns to stabilizing growth, while others argue regulatory tightening will continue amid China’s pursuit of a more sustainable development model with ‘common prosperity’ as the core.