Thursday, October 5, 2023
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China’s policymakers keep investors waiting, but give liquidity assurance


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By Joe Cash

BEIJING (Reuters) – Liquidity in China’s banking system would be kept reasonably ample, an official said during a press conference by the state planner on Friday that left investors dismayed by slow roll out of support for an economy that has lost its post-pandemic bounce.

Anticipation was riding high for some positive news from three press conferences convened this week by the National Development and Reform Commission (NDRC), after a meeting of the ruling Communist Party’s Politburo on July 24 fanned hopes that stimulus measures were on the way.

Investors in China’s stock markets, however, were clearly underwhelmed, as Hong Kong’s Hang Seng Index dropped roughly 2% over the week, while the mainland’s benchmark CSI 300 index eked out a 0.7% gain.

Share prices came off early highs after the conclusion of Friday’s press conference, as the most positive takeaway was a reassurance from a central bank official that reductions in banks’ reserve requirement ratio (RRR) were still on the table.

“The reserve requirement ratio cuts, open market operations and medium-term lending facilities (MLF) and other structural monetary policy tools… need to be coordinated and flexibly used,” said Zou Lan, head of the monetary policy department at the People’s Bank of China (PBOC).

But investors are becoming frustrated by the time the NDRC is taking to flesh out stimulus policies, or order measures like a cut in stamp duty – that could help China’s ailing property sector, and please investors in stocks and bonds.

Ahead of similar press conferences on Monday and Tuesday, the NDRC released proposals to expand consumption in the automobile, real estate, and services sectors as well as to improve the business environment for private firms. But little in the way of detail emerged from news conferences.

“While the tone is supportive, these are mostly high-level measures without granularity and reiterations of what authorities had said before,” UBS analysts said in a note.

“The joint briefing has likely disappointed some local investors, who held very high hopes (going) into the meeting, expecting to see strong measures like a stamp duty cut to boost the capital market.”

Some analysts speculated that NDRC could be losing some of its clout, having held the power of a mini State Council, or Cabinet.

“I think officials at the ministries could be facing constraints from the top, some of which are ideological,” said Xu Tianchen, senior economist at the Economist Intelligence Unit. “Hence the delays in policy formulation and a lack of groundbreaking measures.”

Tuesday’s proposals did include a central bank-backed extension to loan support tools for small and micro-sized enterprises until the end of 2024, but otherwise were a repeat of existing government objectives, such as continuing to cut down the negative list of industries closed to private investors, improving intellectual property rights and simplifying administrative procedures.

Netizens on Chinese social media have also begun to question what policymakers are doing.

“The official who put this document together has come up with so many policies, each of which has been made up without being clearly explained,” said one user on social media platform Weibo (NASDAQ: WB).

Capital Economics said in a note to clients at the start of this week: “even if we do get the promised stimulus, it is likely to be fairly restrained. Even in a best-case scenario, growth over the second half of this year looks set to be modest.”



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