20180802-兴业研究-Macro__Politburo_Meeting_Switches_Focus_to_Stability_7页_670kb

Politburo Meeting Summary: Focus on Stability

Core Content

The Politburo meeting on July 31, 2018, highlighted a strategic shift in China's economic policy, emphasizing stability over previous growth-oriented approaches. The meeting acknowledged the significant changes in the external economic environment and the challenges posed by the slowdown in domestic growth, particularly in the real estate and shadow banking sectors.

Main Points

• Economic Stability as Priority: The meeting identified the stabilization of employment, finance, foreign trade, foreign investment, and market expectations as the top priority for the second half of 2018.
• Monetary Policy Adjustments: While the PBOC has not reverted to full-scale monetary easing, it is expected to use innovative tools, such as targeted RRR cuts or RRR cuts to replace maturing MLF loans, to support the real economy.
• Infrastructure Investment: Infrastructure construction is being prioritized as part of supply-side reforms, suggesting a potential rebound in infrastructure investment in the second half of 2018.
• Support for Local Government: The State Council executive meeting on July 23 proposed accelerating local government bond issuance and supporting local government funding vehicles (LGFVs), with an estimated additional issuance of 1.2 trillion yuan in 2018.
• Trade and Investment Measures: In response to U.S.-China trade frictions, the government introduced three measures: further opening up, protecting foreign-funded companies' legal rights, and holding the China International Import Expo to boost trade and investment.
• Real Estate Control: The Politburo reaffirmed its commitment to curbing home price growth, with a harsher tone than in 2017. It proposed population shifts as a key factor in determining land and house supply, cracking down on property speculation, and developing a long-term mechanism involving rental homes and property tax.

Key Information

• Shadow Banking: Total social financing shrank faster than expected in 2018 due to the government's crackdown on shadow banking. The PBOC introduced rules to manage asset management products (AMPs), allowing inflows and new investments as long as they mature by end-2020.
• Liquidity Conditions: The interbank liquidity improved, as seen in the drop of the 3M Shibor rate from 4.7% in January to 3.6% in July. However, this does not signal a shift in monetary policy, which remains prudent and neutral.
• Credit Spread: Despite improved interbank liquidity, corporate bond credit spreads continued to rise, indicating limited impact on the real economy's funding environment.
• PMI and Exports: The new order index of PMI remained in the contraction zone for the second month, and there was a close correlation between China's export value and employment, highlighting the need for proactive measures to mitigate external shocks.

Figures and Data

• Figure 1: Shows the 3M Shibor rate and corporate bond credit spread, indicating limited impact of liquidity improvements on the real economy.
• Figure 2: Reflects the sluggish growth of fixed asset investment (FAI) in 2018, with infrastructure investment being a key drag.
• Figure 3: Estimates the additional issuance of local government bonds in 2018, expected to be around 1.2 trillion yuan.
• Figure 4: Depicts the new export order index, showing continued contraction.
• Figure 5: Illustrates the relationship between export value and employment, reinforcing the need for stability in foreign trade.
• Figure 6: Highlights a recent rebound in home price growth in the top 70 cities, indicating the government's continued focus on curbing speculation.

Conclusion

The Politburo meeting underscores a renewed focus on economic stability, with targeted monetary policy tools and infrastructure investment as key levers. While the real estate sector remains under strict control, the government is taking steps to support local government funding and mitigate external trade risks. Overall, the policy direction reflects a balanced approach between maintaining financial prudence and stimulating growth in the real economy.