VIEW: Stan Chart: Policy Headwinds Abating

Standard Chartered note that “innovation, decarbonisation and ‘common prosperity’ rank high on China’s agenda, amid challenging demographic trends and a tougher external environment. The government will likely continue to reallocate resources from over-invested industries (such as real estate) to support the development of home-grown technologies; encourage investment in renewable energy to achieve peak emissions by 2030; and crack down on monopolies to promote social mobility and reduce income disparity. We see less incentive for policy makers to boost growth to above-potential level, unless unemployment and systemic risks call for a counter-cyclical response.”

• “The government may set a growth target of 5% or above for 2022, with policies aligned to achieve the target. The pace and intensity of regulatory tightening are likely to be adjusted to prevent systemic risks. With limited room to cut the reserve requirement ratio (RRR), we expect the central bank to inject liquidity by ramping up targeted lending to banks. This should sustain total social financing (TSF) growth at around 10% in 2022, higher than our estimate of nominal GDP growth. Policy rate cuts look unlikely, as major central banks are expected to tighten policies and China’s CPI inflation may trend higher. With the fiscal stance having normalised to pre-COVID levels, we expect the government to adopt a broad budget deficit of 6.0% of GDP in 2022, slightly wider than the estimated outcome of 5.5% in 2021. This would allow tax/fee cuts while maintaining robust spending on infrastructure.”