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China signals further policy easing to stimulate growth
By Ma Jun |
May 23, 2012, Wednesday
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Print Edition
Print Edition
CHINESE Premier Wen Jiabao said over the weekend the central government would "attach greater importance to stabilizing economic growth." We see this as a signal that the State Council may adopt additional measures to boost lending, accelerate project implementation, and support consumption.
In addition to the above remark, Premier Wen, during his visit to Wuhan, Hubei Province, also said that the government would "better coordinate regulatory policy and monetary policy, improve banks' lending capacity, and ensure the smooth transmission of monetary policy", "strengthen credit support for major ongoing projects, ... and effectively reduce the funding costs for enterprises", and "take effective measures to ensure the supply of ordinary commodity housing units."
Our interpretation of these and other remarks by Premier Wen is as follows:
1) The Chinese government will likely provide window guidance, via the National Development and Reform Commission and the China Banking Regulatory Commission, to relax restrictions on lending to infrastructure projects, including some operated by local government financing vehicles with repayment capacity. This policy will reduce the "pro-cyclicality" of prudential regulations, and is very much in line with our view over the past few months. 2) The Chinese government will probably relax restrictions on lending to developers that focus on ordinary commodity housing. 3) The authorities will likely consider either allowing an expansion of the "floating range of lending rates" (currently up to 10 percent below the benchmark rates) so that commercial banks can cut lending rates on some loans, or reduce the benchmark lending rates. These measures will help reduce funding costs for corporates and boost loan demand. 4) The government will likely continue its accelerated pace for approving new projects. 5) The government will likely accelerate the value-added tax reform, currently as a pilot program in Shanghai, to other provinces. This reform will help reduce tax burdens on service industries especially the transport sector.
Overall, we believe that the Premier's remarks and the forthcoming policy actions in this direction should help boost sequential growth of economic activities in the coming one to two quarters.
In addition to the above remark, Premier Wen, during his visit to Wuhan, Hubei Province, also said that the government would "better coordinate regulatory policy and monetary policy, improve banks' lending capacity, and ensure the smooth transmission of monetary policy", "strengthen credit support for major ongoing projects, ... and effectively reduce the funding costs for enterprises", and "take effective measures to ensure the supply of ordinary commodity housing units."
Our interpretation of these and other remarks by Premier Wen is as follows:
1) The Chinese government will likely provide window guidance, via the National Development and Reform Commission and the China Banking Regulatory Commission, to relax restrictions on lending to infrastructure projects, including some operated by local government financing vehicles with repayment capacity. This policy will reduce the "pro-cyclicality" of prudential regulations, and is very much in line with our view over the past few months. 2) The Chinese government will probably relax restrictions on lending to developers that focus on ordinary commodity housing. 3) The authorities will likely consider either allowing an expansion of the "floating range of lending rates" (currently up to 10 percent below the benchmark rates) so that commercial banks can cut lending rates on some loans, or reduce the benchmark lending rates. These measures will help reduce funding costs for corporates and boost loan demand. 4) The government will likely continue its accelerated pace for approving new projects. 5) The government will likely accelerate the value-added tax reform, currently as a pilot program in Shanghai, to other provinces. This reform will help reduce tax burdens on service industries especially the transport sector.
Overall, we believe that the Premier's remarks and the forthcoming policy actions in this direction should help boost sequential growth of economic activities in the coming one to two quarters.
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