The People's Bank of China (PBOC) building in Beijing, China, on Tuesday, April 18, 2023.
Bloomberg | Getty Images
China's top leadership surprised the market on Monday by signaling a shift in its monetary policy stance after 14 years, suggesting that the economic challenges facing the country are well entrenched, but that major stimulus is unlikely to be delivered, according to experts.
China is looking to change its policy stance next year to “somewhat loose” from “cautious” – a phrase it has not yet used. Since the height of the global financial crisis in 2008When they softened the position and stuck to it until 2010.
Larry Ho, chief economist at Macquarie University, said this was the first time the current leadership had acknowledged that monetary policy needed to be loose, paving the way for a “new cycle of monetary easing”.
“Such language suggests that policymakers are deeply concerned about the economic outlook, given the slowdown in domestic demand and the threat of another trade war,” Hu added.
Despite a wave of stimulus measures since late September, recent economic indicators show that the world's second-largest economy is still suffering from deflationary pressures, amid tepid consumer demand and a prolonged contraction in the housing sector.
“The potential scope for monetary policy easing is much more limited (now) than it was 15 years ago,” said Tao Wang, head of Asian economics and chief China economist at UBS Investment Bank, who expects “an interest rate cut of more than 50 basis points.” “Over the next year. The next two years.
Policy shift
Gabriel Wildau, Teneo's managing director, said the Chinese government launched a “historically large monetary stimulus in response to the global financial crisis.”
Beijing had Announcing 4 trillion yuan ($586 billion) Package in November 2008 – which was about 13% of China's GDP at the time – Sustaining growth and eliminating its impact The worst global economic recession in more than 70 years.
When the authorities adopted a “rather lenient” policy stance in 2008, the People’s Bank of China decided The bank cut its key one-year lending rate by 156 basis points Ming Ming, a former official with the Monetary Policy Department of the People's Bank of China, said the cash reserve ratio increased by 1.5 percentage points during the easing cycle. Economic Monitor for State-Supported Media.
Last month, China unveiled a five-year stimulus package A total of 10 trillion yuan Address local government debt problems, noting that more economic support will follow next year. That represents only about 2.5% of China's annual GDP, Ting Lu, chief China economist at Nomura Bank, said in October.
Economists at Morgan Stanley said the debt swap program needed to be significantly expanded to offset local government financial instrument debt, which was nearly half the size of the country's gross domestic product.
Morgan Stanley expects the central government's fiscal deficit to widen by 1.4 percentage points next year, as the government borrows more to support the economy. China kept the central government's deficit target at 3% this year.
People's Bank of China restrictions
People's Bank of China Cut off Key interest rates since late September, after the US Federal Reserve began its easing cycle with a massive 50 basis point cut in mid-September.
Interest rate cuts from the US Federal Reserve have created room for China to do just that Reducing domestic borrowing costs Without causing a sharp decline in the Chinese yuan. However, the People's Bank of China has held back from making further aggressive interest rate cuts due to concerns about potential capital flight if the gap between Chinese interest rates and those elsewhere widens.
Securing growth momentum will be a higher priority than stabilizing the exchange rate.
Bruce Bang
Chief Economist, Greater China, JLL
The tone of Monday's Politburo meeting reinforced market expectations that the People's Bank of China is likely to cut key interest rates by 40 to 50 basis points to closer to 1%, towards the end of 2017, said Joe Wang, head of FX and Greater China rates strategy at BNP. 2025. Paribas said in a note on Tuesday.
Bets are on further interest rate cuts It fueled a long march In Chinese government bonds, pushing the benchmark 10-year yield to record lows on Tuesday.
While monetary easing may put pressure on the Chinese yuan, “securing (economic) growth momentum will have a higher priority than exchange rate stability,” Bruce Pang, chief economist for Greater China at JLL, told CNBC.
Pang expects the central bank to lower the reserve requirement ratio, or RRR, a key liquidity control tool, within a month.
Not a “bazooka”
UBS's Wang added that more details about Beijing's macro policy plans will be revealed at the annual economic work conference, which is said to be underway and ends on Thursday.
However, most of the key policy objectives and details of the stimulus measures will only be announced at the National People's Congress next March, she added.
Investors and economists are awaiting any concrete political follow-up, especially with regard to additional financial support and direct consumption incentives.
The stronger language on Monday does not suggest that “bazooka-style stimulus will arrive immediately,” Wildau said, which sees senior leaders rolling out new stimulus measures “in a gradual, data-driven manner, while keeping some ammunition in reserve.” In response to potential US tariffs next year.
Wang said reviving household consumption is a top priority for policymakers, and he expected the government to double its trade program to more than 300 billion yuan to stimulate domestic spending.
China in July was He announced the allocation of 300 billion yuan ($41.5 billion) in the form of special long-term government bonds to support trade policy and equipment modernization, in an effort to boost consumer demand.
Besides the swap program, the current fiscal stimulus package has focused little on boosting consumption, which is key to reviving the economy, Sunny Liu, chief economist at Oxford Economics, said in a note on Wednesday, stressing that China will continue to face deflation. Near-term pressures.
