China 5 Economic Goals for 2016: Deleverage, Destock, Cut, Shut and Fix

China has 5 main goals for 2016: reduce housing inventory, deleverage balance sheets, shut overproduction, cut business costs and fix the weak links.
next year the economy has five tasks: reduction of industrial capacity, destocking, deleveraging, reduce costs and improve weaknesses.
How to reduce housing inventory? Tell developers to cut prices. Not a bad idea considering the government decided it will finance the purchases of those homes. Prepare for offers you cannot refuse!
China will encourage real estate developers to reduce prices in order to inventory, repeal outdated restrictive measures.
Also discussed was promoting the rental market, as well as consolidation in the industry.

Supply side is the focus of reforms, at least at the Central Economic Work Conference. The problem for China is that its supply is in the wrong places, it has misallocated capital. China is the textbook case of Austrian malinvestment that can be cleared most quickly and efficiently by the price mechanism.
The meeting stressed that to promote supply-side structural reforms, is a major innovation to adapt and lead the economic development of the new norm, is to adapt the international financial crisis, competition in comprehensive national initiative to choose the new situation, China's economic development is to adapt to the inevitable requirement of the new normal.
The five goals are fleshed out:
First, actively and steadily resolve the overcapacity. In accordance with corporate body, government promotion, market guidance, according to disposal methods, study and formulate a comprehensive package of policy system, local conditions, orderly disposal and properly handle and maintain social stability and promoting structural reforms relationships. According to the law to create the conditions for the implementation of market-based bankruptcy procedures to expedite the bankruptcy case to liquidation. To propose and implement fiscal support, non-performing assets, the unemployed re-employment and livelihood security as well as special awards supplement other policies, capital market to meet corporate mergers and acquisitions. Mergers and acquisitions as much as possible, less liquidation, placement of workers do work. To strictly control increment, to prevent new overcapacity.

Second, to help enterprises reduce costs. To carry out the real economy, reduce business costs of action, play "combination punches." To reduce the institutional transaction costs, the transformation of government functions and decentralization, further clean standardize intermediary services. To reduce the tax burden, further positive tax clearance fee, to clean up all kinds of unreasonable charges, create a fair tax environment, research to reduce the VAT rate in manufacturing. To reduce social insurance, research streamline merge "insurance policy." To reduce the financial cost, the financial sector to create interest rate normalization policy environment, none of the real economy. To reduce electricity prices, electricity market reform to promote and improve the coal price linkage mechanism. To reduce logistics costs and promote circulation system.

Third, to resolve the real estate inventory. To improve household population urbanization rate according to accelerate and deepen the reform of the housing system requirements, by accelerating the people of migrant workers, and expand effective demand and open up channels of supply and demand, inventory digestion, stabilize the real estate market. To implement the household registration system reform program, to allow the transfer of population and other non-agricultural household population settled in the place of employment, so that they form in the expectations and demands of long-term employment to buy or rent. To clear the direction of deepening the reform of the housing system to meet the new needs of the public housing as the main starting point to build both available for rent housing system as the main direction of the public rental to non-household population. To develop the housing rental market and encourage individuals and institutional investors to purchase stock of real estate , becoming the rental market housing providers, in order to encourage the development of rental housing for the main business of specialized enterprises. Real estate development enterprises should be encouraged to follow the laws of the market to adjust marketing strategy, due to lower housing prices, to promote the real estate mergers and acquisitions, increased industrial concentration. To cancel the restrictive measures obsolete.

Fourth, to expand the effective supply. To fight poverty battle, poverty persist precise, accurate poverty, filing legislation aimed card poverty, increase funding, policy, work and other investment, do solid work, improving the quality of poverty reduction. To support technological upgrading of enterprises and equipment renewal, reduce the debt burden, innovative financial support ways to improve the technological transformation of enterprises investment capacity. Foster the development of new industries, speed up technology, products, and other innovative formats. Hard and soft infrastructure to be filled short board, and improve investment efficiency and precision, promote the formation of market-oriented and sustainable investment mechanism and operation mechanism. To increase investment in people, and enable workers to better adapt to changing market conditions. To continue to focus on agricultural production, protect agricultural products[ 5.29% funds research report ]Effective supply, protect the rations of safety, security and stable growth of farmers' income, strengthening agricultural infrastructure modernization, implementation of storing grain on the ground, hiding food in technology strategy and policy priorities of the funds used in the protection and improve comprehensive agricultural production capacity and the quality of agricultural products, benefits on.

Fifth, guard against and defuse financial risks. To dispose of the law on the credit default. To effectively resolve local government debt risk, good stock of local government debt replacement, improve the full-bore government debt management, improving the way local government bond issuance. To strengthen all-round supervision, standardize the behavior of various types of financing, financial risk efforts to conduct special rectification, and resolutely curb the spread of illegal fund-raising momentum, strengthen risk monitoring and early warning, and properly handle risk cases, and resolutely hold the bottom line and regional systemic risk does not occur.

Marketwatch: China reveals focus of its 2016 economic plan
China will focus on reducing industrial overcapacity, slashing its glut of unsold homes and mitigating financial risks under a new economic plan for next year, a senior Chinese official said Monday.

That plan, which the official said had been approved at a meeting of top leaders led by President Xi Jinping, nods to persistent problems that are hurting growth in the world's second-largest economy. China is set to report its slowest annual economic growth rate in 25 years, and many economists said it would struggle to reach that goal.

Reuters: China to make monetary policy more flexible in 2016 to support reform
China will make its monetary policy more flexible next year to create conditions for structural reforms, while expanding its budget deficit, Xinhua news agency said on Monday, citing decisions made at a top-level meeting.

The annual Central Economic Work Conference is keenly watched by investors for clues on policy priorities and main economic targets for the year ahead.

"The prudent monetary policy needs to be more flexible so as to create appropriate monetary conditions for structural reforms," Xinhua said, citing a statement after the conference.

iFeng: Hundreds of billions of corporate tax relief is coming! Development and Reform Commission has launched research
In recent years, enterprises accelerate the increase in the cost of the entity. Industrial enterprises, for example, by the end of 2014 the industrial enterprises above designated size main business income, main business costs accounting for up to 86 percent, accounting for 9% of all kinds of taxes, the main profit accounting for only 5%. In the main business costs, raw material costs, capital costs, transaction costs and accounted for the bulk.

..."It is estimated that, from the micro level, the comprehensive tax burden on Chinese companies an average of about 40% and to our total revenue divided by GDP obtained by the state's macro tax burden in 2014 It reached 37 percent, roughly equivalent to the highest level of developed countries, higher than the average for developing countries is about 10 percent. "Only the tax burden down, in order to give enterprises to create a better living space.
A ~10% cut in taxes would deliver a ~20% boost to profits. Cuts of that magnitude aren't in the pipe, but if the government can lower financing costs (a big if considering the track record) and reduce regulations, it might be able to accomplish significant cost reductions for business. This is an eminently achievable goal, a conservative goal with a high probability of success. The problem doesn't lie in achieving positive results though, it lies in dealing with the negative effects of prior policies.

We will know soon after Chinese New Year whether the central government will be able to achieve the goal of shuttering excess production. If they can't, there's not much to say except to review your bearish scenarios.

Based on modern Chinese economic history and statements about easy money and rising debt, the central government is likely to pay for the transition. The costs will fall on the banks and the central government or central bank will absorb the cost.

If China is successful: short yuan and long distressed asset managers.

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