China’s leadership held the end-July Politburo meeting today to lay out policies for the second half. The statement met our overall expectations as laid out in a note on Friday (link HERE). Beijing signaled moderately more urgency to boost growth in H2, but through incremental support rather than a major expansion in scale or scope of stimulus. This is more about managing downside risks to growth than supercharging the recovery, which will remain subdued – particularly in terms of nominal growth given the ongoing deflationary pressure from weak domestic demand.
Initial takeaways here, with more analysis to come:
- Beijing reaffirmed the intent to achieve the growth target of “around 5%” this year and pledged to make macro policies “more powerful” to address weak domestic demand. (Note that the GDP target of “around 5%” means Beijing would likely tolerate growth as low as 4.7-4.8%.)
- However, the Politburo signaled an incremental strengthening of existing policies rather than a major expansion in the scale or scope of stimulus.
- Fiscal policy met our basecase expectations as laid out in the preview note on Friday. The Politburo pledged to speed up fiscal spending within the existing fiscal deficit and local government bond quota, but left the open the door for additional fiscal measures in coming months. An upside case would have been a more immediate announcement of those additional measures, such as further issuance of ultra long-term treasury bonds. We do still expect a modest increase in the deficit later this year, whether through issuance of special long-term bonds or support from China’s policy banks.
- Language on monetary/credit policy was slightly strengthened but this area will only play a supporting role relative to fiscal stimulus – at least until Fed cuts provide more scope for PBOC to cut rates without adding to depreciation pressure on the CNY.
- The language on the property sector is vague but (to us) implies an incremental increase in support for existing policies – inventory absorption, conversion of unsold apartments to affordable housing, and guaranteeing delivery of stalled apartments. This could translate to additional financing from the PBOC (such as through its PSL facility) for housing programs but the scale of the increase is likely to be modest. Property is still mentioned in the section on “managing risks” (that is, rather than being viewed as a growth driver).
- There was positive language on increasing attention to consumption as a key growth driver, but this seems more about the medium-term policy direction than near-term support.
- Interesting new language on combating “involution” and some other phrases suggests growing urgency by China’s leadership to reduce duplicative/excessive investment at the local level. Again, this seems more about medium-term policy direction than an area likely to impact near-term growth conditions.
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