China shifts toward easing with property downturn hitting growth

President Xi Jinping oversaw a meeting of the Communist Party’s Politburo on Monday that concluded with a signal of an easing in curbs on real estate.

BEIJING: China’s policymakers moved to expand support for the nation’s economy as a property market downturn threatens to hamper growth into next year.

President Xi Jinping oversaw a meeting of the Communist Party’s Politburo on Monday that concluded with a signal of an easing in curbs on real estate.

The leadership panel, gathering in advance of a broader annual economic session that sets goals for the coming year, pledged to stabilise the economy in 2022. That’s amid a liquidity crunch among developers that’s roiled the nation’s bond market.

The People’s Bank of China (PBoC) also on Monday said it will reduce most banks’ reserve requirement ratio (RRR) by 0.5 percentage point next week, releasing 1.2 trillion yuan (US$188bil or RM797.19bil) of liquidity.

Premier Li Keqiang – who last week had signalled Monday’s PBoC move – said later Monday night that China has room for a variety of monetary policy tools, including cutting the RRR.

“The Politburo policy-tone adjustment signalled clearly that the senior leadership has recognised downward pressures on the economy,” UBS Group AG economists led by Wang Tao wrote in a note.

While the central bank “reiterated an unchanged ‘prudent’ monetary-policy stance, we think this RRR cut in fact sends a clear signal of monetary policy easing,” they wrote.

China will focus on stabilising macroeconomic conditions, ensuring the economy grows in a reasonable range and that society remains orderly ahead of the party’s key 20th congress meeting later next year, the Politburo said.

The Politburo statement didn’t include the phrase “houses are for living in, not for speculation” – language that the Politburo had used in July and also in an essay by Vice-Premier Liu He last month.

The statement in July focused on the need to control housing prices, which was mostly missing from Monday’s announcement.

“Tone on the housing sector is more dovish,” Morgan Stanley China economists led by Robin Xing wrote in a note.

“We reiterate our above-consensus GDP growth forecast of 5.5%, seeing a clear policy shift toward countercyclical easing and a more institutionalised stage of regulatory reset.”

Even 5.5% would be less than the 6.7% gains in gross domestic product that China logged on average over the five years through 2019, before Covid-19 struck.

While the latest set of industrial and broader economic data showed improvement, Beijing’s tighter curbs on the property market have led to a slump in construction and worsened a liquidity crisis at real-estate firms including embattled China Evergrande Group.

“We think the reduction would help offset the headwinds facing the economy, particularly in the first quarter of 2022. We maintain our view that an additional 50-100 basis points of RRR cut would come next year,” said Bloomberg Economics economist David Qu. — Bloomberg

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