SocGen: NPC: One Great Dose Of Fiscal Easing For Stability

Societe Generale note that “in essence, one headline is all we need to take note from the National People's Congress that commenced on Saturday: the growth target is set at “around 5.5%”. Given all the well-known and grave headwinds (from Omicron, housing to the recent energy price shocks), this target is an ultra-clear signal of policymakers' determination to achieve economic stability this year.”

• “To achieve this, policymakers have prepared a large fiscal impulse of about 3ppt of GDP - one full percentage larger than we expected. And it will be funded by more fiscal savings and SOE dividends in addition to government borrowing. As to how to spend it, the wording in the NPC reports carried little surprise to us: tax/fee cuts, a selective push to infrastructure and some decentralised consumption support.”
• “The stance on reforms that could have negative impact on growth near term is softened overall as expected, albeit to varying degrees on different matters. The stance on housing is relaxed, and the annual target on energy intensity reduction is dropped completely for this year to prioritize energy security while stressing that the implementation will be flexible. However, there are only some very subtle changes in the tone so far regarding (tech) regulations and local government implicit debt. Last but not least, there is no sign yet of moving away from the zero-tolerance COVID approach.”