1.PBoC publishes Q4 monetary policy report
China’s central bank (PBoC) issued its fourth quarter monetary policy report on Thursday.
The key point from the report – current policy settings are not set to change.
More detailed messages include:
- Monetary policy remains prudent.
- Counter-cyclical adjustments are ongoing.
- Key goals continue to be currency stability and reducing financial risks.
- Efforts to support private companies will be ongoing.
The PBoC also indicated that it doesn’t have a lot of room to maneuver given the multiple policy objectives it is trying to achieve.
In related news: A set of studies published by the PBoC indicate it is not about to cut benchmark interest rates (Caixin):
- “China’s central bank said it considers the country’s interest rates to be at a relatively low level amid rising financing costs abroad, pushing back against market expectations of an imminent cut in benchmark rates.”
- “Researchers at the People’s Bank of China recently published on the bank-backed news website Financial News a series of reports analyzing China’s interest rates and monetary policies.”
- “Under current circumstances, China should be cautious in using monetary policies to guide interest rates lower, one report found.”
The bottom line: The PBoC will tinker and adjust, but don’t expect major monetary stimulus in 2019.
2.More from the Q4 monetary policy report
In its Q4 report, the central bank helpfully offered further detail on exactly what it means by “prudent” monetary policy (The Paper):
- “The continued implementation of prudent monetary policy does not mean that the monetary conditions remain unchanged, but that [the central bank] should dynamically optimize and adjust counter-cyclical measures according to how the [economic] situation develops.”
- “[It will also seek to] moderately smooth the cyclical fluctuations of the economy, prevent overheating and inflation in periods of acceleration, and combat economic recession and deflation in periods of deceleration.”
- “Quantitatively, the growth rate of M2 and social financing should roughly match the growth rate of nominal GDP.”
- “The interest rate level should meet the requirement of keeping the economy at its potential output level.”
Get smart: Overall credit growth is currently running very close to the rate of nominal GDP growth. So we don’t expect a significant acceleration in credit any time soon.
That just wouldn’t be “prudent.”
The Paper: 央行教你理解稳健的货币政策：并不意味着货币条件维持不变
3.More tax cuts in the offing
Monetary policy may be largely boxed in (see previous entries), but fiscal policy looks set to loosen further in the coming months.
That’s according to a circular issued by the China Securities Industry Association on Wednesday. The circular is seeking opinions from industry players to reduce taxes and fees on trading in the A-share market.
Three taxes might be cut:
- The 1% stamp duty on equity sales
- Dividend taxes, which are currently 5% for individuals holding shares for more than one year, 10% for individuals holding shares for one month to one year, and 20% for those holding shares for less than one month
- Capital gains taxes, which stand at 20% of profit on stocks purchased through non-secondary market channels.
One important note of caution: Authorities have previously said that the stamp duty is an important tool for reducing market volatility.
What to watch: Securities companies have until February 27 to comment.
Get smart: Leaning on fiscal policy, rather than monetary policy makes sense. The PBoC has been making that exact argument for months.
Get smarter: It’s not clear how much of an impact these tax reductions would have on the overall economy. But every bit helps.
Sina: A股减税降费征求意见：除了印花税 还有这些重要税费
4.House prices grow at the slowest pace in nine months
Caixin reports that home prices in China continued to ease in January:
- “New home price growth in China decelerated for a third straight month.”
- “The value of new homes, excluding government-subsidized housing, increased 0.61% on average in January from December in 70 major cities tracked by the government, data released by the National Bureau of Statistics Friday showed.”
- “That’s the slowest pace in nine months.”
Get smart: These price declines are stoking speculation that a growing number of Chinese cities will soon look to ease housing restrictions.
We aren’t so sure: Xi Jinping appears committed to reining in housing speculation. And what the Big Man wants, the Big Man gets.
What’s more, policymakers have worked for over two years to contain housing prices. It seems unlikely that they would want to do an about-face and undo those hard-won gains.
What to watch: We’ll look for any key changes to the direction of property policy at the Two Sessions in March.
Fresh Slowdown in China Home Prices Turns Spotlight on Beijing
5.CCDI dings half a million cadres
Get this. Over half a million Party cadres were disciplined in 2018. That’s according to a new report issued by the Party’s corruption watchdog on Wednesday (Caixin):
- “Some 526,000 Chinese Communist Party members received punishment from the Party for corruption in 2018, according to a new report.”
- “The report was released Wednesday by the Party’s corruption watchdog, the Central Commission for Discipline Inspection, though it appears to have been completed in January.”
- “The report says the punished individuals include 68 high-level officials registered in the Organization Department of the Central Committee — the country’s highest Party personnel management organization.”
Check this out:
- “177,000 individuals received punishment for “poverty alleviation-related corruption” cases.”
Our thought: 177,000! That’s a lot. There are around 800 “poor counties” in China. That means that for each one, there were approximately 220 corruption officials!
Get smart: Even after six years, there is still A LOT of corruption. That’s one reason that the anti-corruption campaign isn’t slowing down.
Caixin: Half a Million Party Members Penalized for Corruption in 2018
6.New Foreign Investment Law set to be passed soon
One big thing to watch for at this year’s Two Sessions – that will begin in just over a week – is the approval of the Foreign Investment Law (See Jan 30 Tip Sheet).
The key concern among foreign businesses: The law is too vague.
Get this: The current draft is just one-fifth the length of the previous version.
According to Ma Yu – a Ministry of Commerce (MofCom) policy advisor involved in drafting the law – that’s partly because the previous version was unnecessarily long (Sina 1):
- “At that time, all relevant functional departments wanted to retain the power to manage foreign investment, and too many details were included in the draft.”
That dynamic has completely changed this time around (Sina 1):
- “The introduction of the ‘Foreign Investment Law’ is imperative.”
- “When certain parts of the law encounter disputes, it is recommended to delete [that section] and no longer get bogged down in the details.”
Here’s how business should understand the law, according to Li Zhanshu, head of China’s legislature (NPC):
- “[The FDI Law] will be the basic instutional framework for foreign investment under the new pattern of comprehensive opening up.”
Thanks Zhanshu! That clarifies a lot…
Get smart: Legislators are kicking the can down the road and leaving the tough decisions for later.