HSBC Update Post Politburo Meeting

The bank updates it views post the Politburo meeting, stating what may be done to aid the housing outlook, while also noting fiscal policy will play the leading role to support growth.

HSBC: "The Politburo announced that China would "coordinate research on policies to digest existing real estate and optimize incremental housing, and promptly build a new model of real estate development to promote high-quality real estate development". There has been a slew of measures rolled out by the central and local governments in recent months, though key metrics for the real estate sector remain in contraction (see China GDP, 16 April). Clearly more needs to be done, but what? A concrete push to facilitate the new dual track housing development model will help, in our view. In order to destock the private housing inventory while increase public housing supply, the government may consider bolder steps ahead, such as using the so-called 'Spain model' to absorb unfinished and unsold private housing units with a bad bank (see Propping up property, 8 Feb). As a matter of fact, following the US Treasury Secretary Yellen's visit to China, it's reported that China is considering setting up a designated platform to acquire unfinished housing projects (RFI, 8 April). While waiting for concrete measures to be announced, at least we know more top down measures are on the cards.

Fiscal policy will play the leading role for lifting growth. The Politburo reiterated points made in the recent MoF meeting, namely policymakers will ramp up special government bond issuance and promptly issue the newly announced ultra-long dated special central government bonds. This will likely help to keep infrastructure investment elevated while new upgrading policies should also promote manufacturing investment demand through equipment upgrading.

Monetary policy will continue to play a supportive role. The Politburo mentioned ongoing implementation of prudent monetary policy and the need to "flexibly use policy tools such as interest rates and reserve requirement ratio cuts". That said, we think exchange rate stability will still be in focus, especially as uncertainty around DM central bank policies remain. Thus, we think the PBoC will likely opt to use liquidity injections via various policy tools to provide easing support with a further 50bp of RRR cuts this year, though scope for interest rate cuts may come through in H2 (we expect 20bp cuts then) (see PBoC Watch, 25 April)."