2019-07-31

No Major Stimulus, No Housing, No Deleveraging, China Will Rely on Tax Cuts and Parking Lots to Hit 2H GDP Target

I'm exaggerating, but I'm not sure by how much because urban parking lots were named specifically as one of the growth strategies for the second-half of 2019.

Politburo document at 财新:中共中央政治局召开会议 不将房地产作为短期刺激手段
A breakdown at iFeng: 中共中央政治局会议首现五个新提法 释放一系列政策信号
Sogou translation of iFeng article: The First Five New Terms of the Political Bureau Meeting of the CPC Central Committee Released a Series of Policy Signals

I will paste the entire translation below, but here is the relevant section:
Regarding the expansion of investment, the meeting mentioned "stabilizing investment in manufacturing industry, implementing short-board projects such as renovation of old urban districts, construction of urban parking lots and cold chain logistics facilities in urban and rural areas, and accelerating the construction of new infrastructure such as information networks."
There main takeaways are as follows. One, no major stimulus. Tax cuts are the stimulus being provided, monetary policy will provide "rational liquidity." However, the word deleveraging did not appear as it has in prior economic policy statements.

Two, no reliance on housing speculation. See Caixin: China Vows to Support Economy Without Property Stimulus
Top policymaking body states for the first time that the property market will not be used for short-term stimulus, departing from previous stimulus methods
Finally, there was discussion of "urban agglomeration," which is a continuation of recent efforts at building megacities. "Urbanize" the urban areas, concentrate labor and use the technology industry to drive growth. That's more of a long-term policy though. (One that will further lower fertility rates.) In the short-term, it looks like China will rely on shovel ready projects such as parking lot construction to hit their GDP target.

Other coverage

Bloomberg: China’s Politburo Vows Action on Trade, Tweaks Stimulus Policy
Nikkei Asian Review: China's Politburo pledges action to keep economy moving

Full Sogou translation:
The meeting of the Political Bureau of the CPC Central Committee is the best window to observe the direction of macro policies. The meeting of the Political Bureau of the CPC Central Committee held on July 30 made arrangements for the economic work in the second half of the year, and a number of new ideas emerged. These new formulations have released a series of important policy signals.

First, the macro policy tone remains unchanged, with the first mention of "reducing taxes and fees"

Signal: Do not engage in strong stimulus, and increase the amount to fulfill the promise of a 2 trillion yuan tax cut for the whole year.

The meeting proposed: "We should implement a positive fiscal policy and a sound monetary policy. Fiscal policy should be strengthened to improve efficiency and continue to implement the policy of reducing taxes and fees. Monetary policy should be moderately tight and maintain reasonable and sufficient liquidity. "

From this, we can see that the macro policy tone will remain unchanged in the second half of the year. Compared with the politburo meeting held in April, fiscal and monetary policies added two suffixes: "continue to implement the policy of reducing taxes and fees" and "maintain reasonable and sufficient liquidity".

Li Chao, chief macro analyst of Huatai Securities, told reporters of Shanghai Stock Exchange: "The emphasis on efficiency improvement and tax and fee reduction in the July meeting compared with April means that the policy is still based on bottom-up."

He analyzed and said that the monetary policy continued the expression of "moderate tightness" in the April meeting and judged monetary policy according to economic growth and inflation trend. The core of the current policy is still to solve the problem of aggregate demand through supply-side reforms.

Tang Jianwei, chief researcher of the Bank of Communications, said in an interview with reporters from the Shanghai Stock Exchange newspaper that the fiscal policy emphasizes the continued implementation of the fine tax reduction and fee reduction policy, of which the word "fine" has not been mentioned before. It is expected that the tax reduction and fee reduction will be stepped up in the second half of the year to accelerate the implementation of the promise of nearly 2 trillion yuan in tax reduction and fee reduction for the whole year.

Two, the first mention of "multi-purpose reform measures to expand consumption" in the transformation of old urban residential areas included in the short board

Signal: The focus of stabilizing investment is still on stabilizing infrastructure.

This meeting made a series of specific arrangements to expand domestic demand, which was not common in previous politburo meetings.

Among them, aiming at expanding consumption, it is proposed that "the potential of domestic demand should be dug deep, the final demand should be expanded, the rural market should be effectively started, and more reform measures should be adopted to expand consumption."

Compared with previous politburo meetings, "more reform measures to expand consumption" is a new formulation. Tang Jianwei said: "The sluggish consumption growth is largely related to the low growth rate of residents' income and the imperfect social security system. These needs to be realized through the reform of income distribution system and social security system, so as to really promote consumption growth."

The latest data from the National Bureau of Statistics show that in the first half of the year, consumption increased by 8.4% year on year, 0.1 percentage point faster than in the first quarter. During the same period, the national per capita disposable income grew by 8.8% in nominal terms and 6.5% in real terms after deducting price factors, slightly higher than the GDP growth rate. Regarding the expansion of investment, the meeting mentioned "stabilizing investment in manufacturing industry, implementing short-board projects such as renovation of old urban districts, construction of urban parking lots and cold chain logistics facilities in urban and rural areas, and accelerating the construction of new infrastructure such as information networks."

It is worth noting that this is the first time that the renovation of old urban districts has been incorporated into the short-board project. Previously, the state's document on the short board for infrastructure construction has been referring to the renovation of shantytowns, not the renovation of old residential areas.

Since this year's government work report proposed to vigorously upgrade old urban residential areas, in April the Ministry of Housing and Construction and other ministries jointly issued the "Notice on Doing Well the Work of Upgrading Old Residential Areas in 2019". Recently, the executive meeting of the State Council has also deployed many times to promote the renovation of old residential areas.

Li Chao said: "The renovation of old residential areas is the key to stable investment in the future. This meeting has more emphasis on its role of supplementing the shortage. It is expected that the central government in this field may increase its financing support."

Tang Jianwei also pointed out that apart from stabilizing investment in manufacturing, the meeting also mentioned the renovation of old residential areas and new infrastructure such as information networks. In line with the previous policy of allowing special bonds as capital, it is expected that the focus of stabilizing investment in the second half of the year will remain on stabilizing infrastructure.

Three, adhere to the "housing does not fire", emphasizing "not to use real estate as a short-term means to stimulate the economy."

Signal: Real estate regulation will not be relaxed in the short term.

The meeting mentioned: "Insist on the position that houses are for living, not for speculation, implement a long-term management mechanism for real estate, and do not use real estate as a short-term stimulus to the economy."

The meeting reiterated the keynote of "no speculation in housing", but compared with previous politburo meetings, it clearly emphasized for the first time "not to use real estate as a short-term stimulus to the economy".

"The statement further clarifies the market role of real estate, that is, real estate should not be a tool to stimulate the economy. Localities still need to strengthen the concept of consumer goods, that is, houses are for living, not for speculation." Yan yuejin, director of research at the think tank center of yi ju research institute, said in an interview with the Shanghai stock exchange newspaper that when developing real estate business in various places, more consideration should be given to the consumer demand behind the real estate, instead of making too many links with economic stimulus, etc.

Zhang Jun, chief economist of Morgan Stanley Huaxin Securities, told Shanghai Stock Exchange newspaper reporters: "The statement of real estate policy shows that the key to stable growth in the year is to supplement the shortage of infrastructure. Loosening real estate regulation is obviously not an alternative policy in the government policy toolbox."

He believes that China's current urbanization rate is still relatively low in developed countries, and there is still much room to encourage reasonable real estate consumption. However, in the short term, with high housing prices and certain bubbles in some cities, there will be no directional changes in real estate policies, and more importantly, the policy of implementing policies based on cities will be maintained. In view of the current low inventory level, it is estimated that the probability of a sharp slowdown in real estate investment growth in the second half of the year is unlikely and may stabilize at a low level. Housing prices have remained stable as a whole. Due to different control policies and stock levels in different cities, there may be ups and downs.

Four, the year twice mentioned scientific board, the first mention "improve the quality of listed companies"

The meeting proposed: "Scientific Innovation Board should stick to its position, implement a registration system with information disclosure as the core, and improve the quality of listed companies."

This is the second time this year that the Politburo meeting mentioned scientific innovation board. Earlier, at the politburo meeting in April, it was mentioned: "to promote the healthy development of the capital market through key system innovation, scientific innovation board should really implement the securities issuance and registration system with information disclosure as the core."

Five, the first mention of "enhance the function of urban agglomeration"

Signal: The idea of urbanization has changed from small towns to strong big cities.

The meeting also proposed: "Deepen the reform of the system and mechanism, increase the vitality and power of economic development, accelerate the implementation of major strategies and enhance the functions of urban agglomerations."

Compared with previous politburo meetings, "enhancing the functions of urban agglomerations" is a new formulation. Zhu Zhenxin, executive director of the Financial Research Institute, said: "The document of the Development and Reform Commission at the beginning of this year is already very clear. It aims to build urban agglomerations and strengthen big cities."

At the beginning of April this year, the National Development and Reform Commission issued the "Key Tasks for New Urbanization Construction in 2019", which, while making it clear that large cities will fully liberalize their settlement restrictions, publicly mentioned "shrinking cities" for the first time. The document pointed out that small and medium-sized shrinking cities should lose weight and strengthen their bodies, change the inertia of incremental planning thinking, strictly control the incremental, revitalize the stock, and guide the population and public resources to concentrate in urban areas.

Li Chao also believes that the key to improving the functions of urban agglomerations and optimizing the construction of urbanization lies in large cities driving small cities. "In order to get rid of the dependence on the real estate policy, the way is to trigger the technology cycle. The development of science and technology cycle can only rely on big cities, not small cities. At present, the urbanization idea pays more attention to the effective flow of high-skilled and high-quality population, and promotes the optimal allocation of production factors of high-skilled labor force through the attraction of high-skilled and highly educated talents in large cities. "

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