China has adopted varying policies to maintain the economic momentum and keep everything stable ahead of the 19th National Congress of the Communist Party — sometimes tightening, sometimes easing.
Focusing on stability
The Chinese economy has been experiencing divergent trends in policy over the past year, and different sectors have responded with varying performance. There were numerous stimulatory measures: the government provided a fiscal boost by accelerating its spending from 8% to 18% between late 2015 and the end of 2016, and the People’s Bank of China (PBoC), China’s central bank, owered banks’ deposit and lending rates until November 2016. At the same time, the authorities eased lending standards for mortgages and cut auto sales taxes from 10% to 5%. However, domestic credit growth in China has slowed abruptly from 25% to 17% year-on-year over the past year. The auto tax was raised again to 7.5%, and since November, the PBoC started again raising interest rates, lifting the threemonth Shanghai interbank offered rate (Shibor) and three-month repo rates by almost 200 basis points since the start of the year. In part the PBoC has been closely following the Fed to prevent the Chinese currency from depreciating; in part they have been keen to curtail a renewed surge of house prices. House prices in Tier 1 cities like Beijing, Shanghai and Guangzhou had increased by 28% year-on-year last September and had slowed to 13.5% by May 2017.
The main explanation for these seemingly contradictory policy moves is that the 19th National Congress of the Communist Party will be held in Beijing during the autumn. This is widely seen as a key opportunity for President Xi Jinping to consolidate his power, reshuffling the members of the Standing Committee of the Politburo and other key decision-making bodies, and nominating his loyalists to the top posts. Ahead of this Congress, the political imperative is to keep everything stable, and above all to maintain the economic momentum of the economy. This has necessitated a series of moves — sometimes easing, sometimes tightening — to prevent short-term problems from developing into fullblown crises.
Click Download PDF to read the full article
All data are sourced from Invesco dated 13 July 2017 unless otherwise stated.