Comment on CPC meeting to discuss economic situation: Reiterates “stabilization on six fronts”; rules out real estate stimulus

    The CPC Politburo held a meeting on July 30 to analyze the current economic situation and arrange economic policy for 2H19. The meeting attached more attention to the downward economic pressure, and reiterated the idea of “stabilization on six fronts” (employment, foreign trade, investment, finance, foreign investment and expectation). Preventing risk remains a key task in 2H19, but attention will be paid to the pace and scale of such actions. The proactive fiscal policy will focus on implementation, and monetary policy will keep liquidity conditions “reasonably accommodative.” The Politburo proposed taking reform measures to boost domestic demand, but will refrain from using the real estate market to stimulate the economy.

    Meeting attaches attention to downward economic pressure; reiterates “stabilization on six fronts.” The politburo statement pointed out that “China’s economic development faces new risks and challenges, and downward pressure is increasing for domestic economy,” while the April statement indicated “there is downward pressure in the domestic economy”. In addition, the meeting again called for efforts to stabilize employment, foreign trade, investment, finance, foreign investment and expectation, implying a more proactive stance compared with April.

    “Preventing risk” remains major objective in 2H19, but attention should be paid to pace and scale of risk treatment. The meeting called for efforts to “maintain stable growth, advance reform, make structural adjustments, improve living standards, guard against risks, and ensure stability”, in line with the meeting in April. Meanwhile, the statement says attention must be paid to the pace and strength of risk treatment, and making financial institutions, local governments and financial regulators responsible. We expect a more ordered approach to risk control measures such as financial deleveraging in 2H19.

    Proactive fiscal policy focuses on implementation, and monetary policy will keep liquidity at “reasonably ample level.” The meeting emphasized China will continue to implement a proactive fiscal policy and prudent monetary policy. Fiscal policy will be strengthened and additional policies geared to cutting taxes and fees will be implemented. Monetary policy will be neither too tight nor too loose, and liquidity will be kept at a reasonably ample level. We do not expect large-scale stimulus in fiscal and monetary policies in 2H19.

    Reform measures will be taken to boost domestic demand. On the consumption front, the meeting proposed “effectively expanding the rural market and improving consumption via more reform measures.” On the investment front, the meeting called for: 1) stabilizing investment in manufacturing industries; 2) renovating old urban residential areas, building urban parking lots, and improving urban and rural cold-chain logistics facilities to strengthen areas of weakness; and 3) speeding up construction of new infrastructure such as information networks. Moreover, the meeting proposed accelerating implementation of major strategies, and improving the functions of city clusters.

    Real estate policy remains steadfast. The meeting reiterated the principle of “housing is for living in, not for speculation,” calling for “implementing the long-term mechanism to maintain the sound development of the real estate market,” and stated the government will “not use real estate as a short-term means to stimulate the economy.” We expect China will remain highly vigilant against rises in housing prices in 2H19.