Beijing to moderate monetary policy to support growth

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Chinese policymakers have signalled they will moderate monetary and fiscal policy to support growth in the world’s second-largest economy, but remain committed to their larger goals of reining in debt levels and cooling the country’s property sector.

The Chinese Communist party’s annual year-end economic planning meeting, which closed on Friday in Beijing, said it would “prioritise stability”, according to the official Xinhua agency. It added that China’s economy faced “triple pressure” from shrinking demand, supply shocks and weakening expectations.

The three-day meeting has been overshadowed by the ongoing debt crisis at developer China Evergrande Group and a downturn in the broader property market, which has raised fears that economic growth could slow sharply next year.

Consumption has remained sluggish since the government successfully contained the Covid-19 pandemic, in part because its adherence to a “zero Covid” policy that involves regular shutdowns of large urban areas and regional travel whenever there is a small outbreak.

The Chinese government has also had to contend with coal and power shortages over recent months, which contributed to soaring producer prices. China’s producer price index hit a 26-year high in October, rising 13.5 per cent over the same month last year. Consumer price inflation was up just 1.5 per cent.

Rating agency Fitch on Thursday declared that Evergrande had triggered a “restricted default” after it failed to meet a Monday deadline for bond repayments totalling $82.5m. The real estate developer and the Chinese government have remained silent about the missed payment.

On Monday, China’s central bank cut the level of reserves banks must maintain, injecting about Rmb1.2tn into the financial system. The move was widely interpreted as a signal that Beijing wanted to calm market nerves ahead of an official default by Evergrande.

But state media and Chinese analysts warned that the government remained determined to discipline overleveraged companies and restrain property prices as part of President Xi Jinping’s larger effort to deliver “common prosperity”.

Zhu Ning, deputy dean at the Shanghai Advanced Institute of Finance, noted that much of liquidity released by Monday’s reserves cut by the People’s Bank of China would be negated by the expiry of about Rmb900bn in medium-term lending facilities this week. “There hasn’t been a big turn in policy,” Zhu said. “It’s a marginal loosening, not a major shift.”

On Tuesday, the Economic Daily, a newspaper controlled by the state council, said that while regulators were determined to protect financial system stability, the reserves cut should not be seen as evidence of “generalised easing”.

The party’s politburo, comprised of its 25 most senior officials, also said on Monday that it would “safeguard social and macroeconomic stability and keep major economic indicators within an appropriate range” ahead of next year’s 20th party congress, at which Xi is expected to secure an unprecedented third term as head of the party, government and military.



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