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Pedestrians cross a road in Beijing on December 13. The central government has said its key economic goals for the coming year include counteracting growth pressures and stabilising the economy. Photo: Bloomberg
Opinion
Macroscope
by Sylvia Sheng
Macroscope
by Sylvia Sheng

No U-turn on China’s regulatory crackdown in 2022, but policy easing should lift investor spirits

  • China’s stock market is rebounding as officials attempt to reassure investors. Beijing’s focus is on ensuring stable growth, but policymakers remain committed to long-term goals such as ‘common prosperity’
Sylvia Sheng
Sylvia Sheng
Why you can trust SCMP
After a weak performance in November, Chinese equities have rebounded strongly in December, pushing the CSI 300 index to its highest level since August. Positive developments on the policy front have given a major boost to investor sentiment recently.
There had been concerns that Chinese policymakers were placing less importance on maintaining high growth levels and creating jobs. As well as normalising monetary and fiscal policies, policymakers have initiated regulatory tightening measures on the property, technology and high-emission sectors this year.
This suggests a change in China’s macro policy framework; Beijing now seems more tolerant of a near-term slowdown in growth to achieve its long-term strategic objectives such as “common prosperity”.

Some investors were worried that the “policy put” – the idea that policymakers would roll out supportive policies to prevent any huge downside and put an effective floor on economic growth – may have been weakened.

However, both the recent Politburo meeting and the Central Economic Work Conference have highlighted growth stability as the top priority for 2022. Policymakers seem more concerned about downward pressures on growth, identifying three challenges: demand contraction, supply shocks and weakening expectations.

These meetings signal that a “policy put” remains in place even though officials may be more willing to tolerate short-term growth pain than before.

In addition, recent easing measures have already helped to reassure investors. On December 6, the People’s Bank of China (PBOC) announced it was cutting the reserve requirement ratio for commercial banks by 50 basis points, releasing around 1.2 trillion yuan (US$188 billion) of liquidity into the financial system.

According to the PBOC, the cut will help reduce banks’ funding costs by around 15 billion yuan (US$2 billion) a year, which will in turn help lower borrowing costs for businesses and provide support for economic activities.

Policymakers have also sent strong signals that they will support the property sector. Protecting the interests of homebuyers seems to be a key focus, and local governments have been asked to help ensure property projects are delivered on schedule.

A residential complex under construction in China’s Guangxi province on November 9. Beijing has pledged to make housing more affordable for first-time buyers, stressing that “housing is for living, not for speculation”. Photo: AFP
As a result, the risk that the current property downturn will lead to a systemic crisis for the Chinese economy appears fairly low.
Moreover, the China Banking and Insurance Regulatory Commission said it would prioritise mortgages for first-time homebuyers. And there has already been some acceleration in mortgage loan approvals. Medium-to-long-term household loans, which are mainly mortgages, picked up in November and a further easing of mortgage loans should be expected in 2022.

Regulators also pledged support for property development loans. In recent weeks, less-leveraged private property developers have started tapping the onshore corporate bond market.

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For the year ahead, Beijing is expected to step up monetary and fiscal easing to shore up growth, providing further support for investors. However, unlike the cycles of 2015-16 or early 2020, macro policy easing will remain modest.

The statement from the Central Economic Work Conference suggests policy easing measures will be prioritised in early 2022. We should expect further reserve requirement ratio cuts and more credit support for small and medium-sized enterprises, technology innovation and green investment.
On the fiscal policy side, expect to see greater support for infrastructure investment with an acceleration in the issuance and deployment of local government special bonds.

However, the emphasis on strict control of implicit local government debt will limit the strength of the infrastructure investment rebound next year.

Despite Beijing’s focus on ensuring that growth stays within a reasonable rage in 2022, policymakers remain committed to structural reforms.

As a result, we are unlikely to see a complete reversal of the regulatory tightening on the property, technology and high-emission sectors but, rather, some policy fine-tuning. At the economic conference, policymakers again stressed that “housing is for living, not for speculation”.

Certainly, Chinese officials could ramp up easing, but aggressive policy measures are only likely in the event of a more broad-based growth slowdown, especially weakness in Chinese exports in addition to a slowing property sector and weak consumption.

Sylvia Sheng is a global multi-asset strategist at JP Morgan Asset Management

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