Politburo comments on expanding demand don’t signal stimulus: Caixin

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A shopping mall under construction in Chongqing, China. Photo: Reuters/Stringer

A statement released by China’s top leadership on Monday emphasized for the first time since 2014 the need to boost domestic demand. Many analysts interpreted the statement as a sign that China is ready to ease off tightening policies as the country braces for a possible economic slowdown amid trade tensions.

Analysis from Chinese financial news outlet Caixin disputes this assumption, arguing that despite economic headwinds, Beijing is not moving to back off tightening policies.

From a Caixin newsletter on Friday:

“Controlling financial risks and deleveraging are still top priorities for the party and the government, as reflected in comments the Politburo statement that referred to ‘going all-out to fight the three tough battles,’ namely prevention of major risks, alleviating poverty and controlling pollution. In addition, the statement called for the healthy development of the equity, bond and property markets. All of these will require the use of monetary policy to maintain pressure on financial markets and the flow of credit. The Politburo statement also said that monetary policy would remain ‘prudent and neutral.’ As a result, expectations for a change in the direction of monetary policy toward an easing bias are not realistic.”

The commentary went on to say that a recent move to reduce banks’ reserve requirement ratio, announced last week, should be read as an adjustment in the central bank’s liquidity management, not a stimulus.

Caixin analysts said that, while monetary policy easing should not be expected, Beijing will probably lean on central government-funded infrastructure projects, such as the Xiongan New Area to support the economy.

“This will help cushion the likely contraction in local government-funded projects caused by greater scrutiny of their opaque borrowing practices and the sustainability of local government debt amid the crackdown on financial risks,” according to the analysis.

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