China Updates: Politburo Focuses on Quality Growth and Industry Policies

China Updates: Politburo Focuses on Quality Growth and Industry Policies

Macro
Redmond Wong

Chief China Strategist

Summary:  The recent Politburo meeting in China reflected a cautious approach to economic stimulus with limited commitments. The meeting hinted at the potential easing of home purchase restrictions but refrained from introducing specific policies. China is focused on achieving high-quality growth through structural reforms, industry policies, and technological innovations to enhance productivity. Investors are encouraged to seek growth opportunities in industries benefiting from policy tailwinds. Internet stocks are poised to face a more transparent regulatory environment, and the government supports their role in driving innovation and productivity.


Politburo Meeting: Cautious Tone, Limited Commitments

China's economic policies and strategies have been under close observation by global investors and analysts. In recent months, the pace of China's economic recovery has slowed down, leading investors to anticipate a more aggressive approach from China to implement stimulus measures. Despite various initiatives from the Chinese authorities aimed at boosting confidence, these efforts have not met investors' expectations.

The readout of the Politburo meeting held on Monday, 24th July 2023, indicates that the Chinese leadership has placed added emphasis on addressing issues such as insufficient domestic aggregate demand and challenging operating environments for certain businesses. This marks a more cautious tone compared to previous expressions by the Politburo. However, although the readout reiterates the importance of boosting macroeconomic policies, domestic aggregate demand, confidence, consumption, the government's role in investment, the healthy and sustainable development of the platform economy, optimizing the operating environment for private enterprises, fine-tuning housing policies on a city-by-city basis, and stabilizing employment, it does not introduce any new specific policy commitments.

Potential Further Easing of Home Purchase Restrictions

The readout of the Politburo meeting on Monday reiterated recent policies concerning the property sector, with one notable omission being the phrase "housing is for living in, not for speculation." This absence could signal a potential easing of some home purchase restrictions. However, the readout maintains the city-by-city approach and does not suggest blanket policies to boost housing demand. Potential relaxations may involve reducing down-payment ratios, which currently stand at 30% for second or additional homes nationwide, but can reach as high as 50% in certain tier-1 and 2 cities.

Regarding the urban village improvement, recently announced by China's State Council, the initiative will be limited in scale and funded by the local government and the private sector, rather than through the People's Bank of China (PBOC) via policy banks and pledged supplementary lending. The goal is to enhance living conditions in shanty areas of the country's 21 largest cities. In contrast to the last shantytown redevelopment, which was financed through money printing by the PBOC using policy banks like China Development Bank, this time, the directive emphasizes financing from multiple sources, including local governments and the private sector. The directive aligns with the policy direction set during the Politburo meeting in April of the same year.

Trend growth limits the potential efficacy of stimuli

The trend growth of China's economy has been on a decline, dropping from over 10% in 2006 to around 5.5% to 6% even before the pandemic in 2019 (Figure 1). This is primarily attributed to China's total factor productivity growth, which has decreased from over 4% to approximately 2.5% (Figure 2). The long-term growth potential of an economy relies on the quantities of factors of production and the productivity of these factors. While fiscal deficits or monetary measures can help bring an economy closer to its potential when operating below it, they cannot inherently raise the economy's potential growth rate.


Figure 1. China’s real GDP growth (Y/Y); Source: Bloomberg; Saxo

Quarterly Outlook

01 /

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.