China's 2019 Growth Strategy Will Start Emerging This Friday
(Bloomberg) -- China will likely start releasing details of its economic plans for 2019 this Friday, setting out priorities for tackling the nation’s slowdown and managing its debt pile amid the uncertainty of the trade war with the U.S.
Based on what’s happened in the past, the state-run Xinhua News Agency will start trickling out information in the afternoon, followed by a statement in the evening that lays out the basics for all key economic policies. Full details of the policies though won’t be available until they’re signed off by the National People’s Congress in March.
Here’s what to look for:
Monetary, Fiscal, Currency Policy
The most important message in the statement is on the monetary and fiscal-policy stance. While China has kept monetary policy "prudent" in recent years, it’s important to look at what word comes next -- if it’s followed by the word "neutral" that would tend to indicate large-scale monetary easing is not on the cards. A “flexible” moniker might indicate that it is.
The biggest question for fiscal policy would be how "active" it should be. The government needs to strike a balance between its promises of more infrastructure investment and tax cuts, as well as meeting the imperative to contain debt growth. These two together will give markets a rough idea about market liquidity, credit growth and the scale of stimulus they can expect.
The statement will also likely contain a brief comment on the yuan. For the past two years the stance of keeping the currency at a "reasonable, equilibrium level" has been repeated, while a mention of improving how the exchange rate is set hasn’t appeared since 2015. If it’s absent again, it signals that policy makers are keen to keep control of the currency.
Trade, Tariffs, Structural Reform
Trade hasn’t been a major issue discussed at recent work conferences - last year there was a brief promise to lower import tariffs, and for the two years before that there was just a short description of the expectation for exports and imports. So it will be interesting to see if the ongoing dispute with President Donald Trump means there will be a beefed up section on concerns and the outlook for trade.
Property Market, Debt Campaign
The property market, the battle against financial risks such as rapidly increasing debt, the status of the private economy and state-owned enterprise reform are important to the economy’s long-lasting growth. Slowing growth of property development investment concerns economists, as it’s one of the fundamental growth drivers in China, with some predicting authorities could consider loosening controls on home-buying at some point in 2019.
With the rise in trade tensions this year, cleaning up financial risks, the most important task of the three critical battles laid out in last year’s meeting, may get sidelined a little but remain on policy agenda.
The Important Blank
In China’s political terminology, sometimes the things that don’t get publicly mentioned carry the most important message. For instance, lowering financing costs for the economy wasn’t included in the statements from 2016 and 2017. That coincides with China’s efforts to tackle growing debt, which had the effect of driving up effective borrowing costs. A reappearance of the phrase in this year’s statement could mean rates will be managed lower in the coming year.
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