China’s growth slowed further in November amid a surging Covid wave. The government has been easing Covid control rules and notably increasing financial and credit support for the property sector since early November. We expect that the upcoming Central Economic Work Conference (CEWC) in mid-December may emphasize more support for growth, acknowledge the omicron variant’s milder outcomes, further deemphasize the “zero-Covid” goal, reiterate “scientific and precise” Covid controls with more easing, further support the property sector, underpin unemployment and consumption, and enhance macro policy support. We see continued proactive fiscal policy and a supportive monetary and credit policy stance. Similar to before, key policy targets will be released at the National People’s Conference meeting next March, not in the CEWC.
We expect the CEWC to do the following:
1.) Put more emphasis on supporting growth with continued easing of Covid restrictions. The CEWC may reiterate the recent Covid policy easing to minimize the negative impact on growth and highlight more “scientific and precise” Covid controls. The senior leadership may acknowledge omicron being milder with less severe outcomes, and call for further refinement of Covid policy with acceleration of vaccination, especially for the elderly population, as well as a tiered (hierarchical) Covid treatment system. The “dynamic zero Covid” goal may be de-emphasized further, while the government may still aim to limit the scope of Covid infections during the winter season. More de-facto Covid easing and a larger number of new cases at local levels will likely be tolerated. We expect the government to accelerate vaccination, making a clearer narrative change in the coming months, while the timing of future major Covid policy changes may be a bit earlier than our baseline expectation.
2.) Maintain a proactive fiscal policy stance. The CEWC may call for faster public spending to mitigate Covid shocks, improve social welfare, support infrastructure projects and consumption, and roll out targeted tax and fee cuts for small and midsize enterprises. We expect a slightly higher headline fiscal deficit (around 3% of GDP) and a small increase of new quota of special local government bonds (3.7 trillion yuan to 3.8 trillion yuan) in 2023. The augmented fiscal deficit may continue to expand, but with a smaller increase than in 2022.
3.) Keep a supportive monetary policy stance. The CEWC may continue to call for ample liquidity conditions, further lowering of funding costs for the real economy, and continued credit support for the property sector, infrastructure projects, the green economy and innovation. We see robust albeit slightly slower credit growth in 2023, additional reserve requirement ratio cuts, more use of other liquidity facilities such relending and PSL — no policy rate cut, but a small cut to the loan prime rate of 5-10 basis points.
4.) Set a more supportive tone for the property sector. After significant property policy easing in the past month, the CEWC may reiterate a supportive policy tone, despite possibly keeping the wording “no speculation.” The government may call for continued financial and credit support, more regulatory forbearance for financial institutions’ property credit exposure, more funding support for stalled projects, and more policy boosts for homebuyers’ underlying and upgrading demand. We see more local governments lowering down-payment requirements and relaxing home purchase restrictions, banks cutting mortgage rates further, and policy banks offering more credit to ensure home delivery.
5.) Emphasize green economy, innovation and common prosperity. Consistent with the key themes in the party congress report, the CEWC may call for a “proactive and steady” approach to decarbonization with more policy and credit support for new energy investment and applications, support innovation and self-reliance in key technologies and supply chain security with favorable credit and tax measures, and push forward some policy initiatives for common prosperity including support for the labor market.
Wang Tao is the head of Asia economics and chief China economist at UBS Investment Bank.
The views and opinions expressed in this section are those of the authors and do not necessarily reflect the editorial positions of Caixin Media.
If you would like to write an opinion for Caixin Global, please send your ideas or finished opinions to our email: opinionen@caixin.com
Get our weekly free Must-Read newsletter.
