China’s top leaders hint at property support, rate cuts

China’s top leaders hint at property support, rate cuts

China’s ruling Communist Party vowed to examine measures to tackle the nation’s excess housing inventory, signaling stepped-up help for a protracted property crisis, and hinted at possible rate cuts.

Officials will “make flexible use” of tools to support the economy and lower overall borrowing costs, a meeting of the 24-man Politburo led by Chinese President Xi Jinping agreed, the official Xinhua News Agency reported Tuesday.

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Those tools include interest rates and the reserve requirement ratio, which determines the amount of cash banks must set in reserve, according to the statement. Policymakers reaffirmed monetary policy should be “prudent” while fiscal policy should be “proactive.”

Chinese government bonds rallied after the readout, pushing the benchmark 10-year yield down most since March, on bets officials will keep policy loose to bolster growth. The yuan retained a loss of 0.2% amid gains in the dollar.

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“The Politburo meeting shows that the top-level policy stance remains supportive,” said Lynn Song, Greater China chief economist at ING Bank. “The tone on monetary policy is more or less expected, but mentioning interest rate is a positive development, in our view, as the previous focus was on RRR.”

Speculation over more easing in the real estate sector — the biggest drag on the economy — had mounted ahead of the meeting. Property stocks saw the biggest rally this week in more than a year. While the government has trickled out some measures to try to ease a developer financing crunch and boost demand, it has refrained from rolling out any “big bazooka” to stimulate the market.

The Politburo’s language on the property market “indicates we may witness additional measures in the coming months” that involve more demand-side interventions, said Tommy Xie, head of Greater China research at Oversea-Chinese Banking Corp.

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The top-decision making body also announced that Xi will convene senior party officials in July for a delayed, closed-door conclave — known as the third plenum — that will be scrutinized for signs of long-term reforms, according to the statement.

The Politburo’s April meeting is one of its three annual huddles to focus on the economy, and is closely watched for signals of shifts in economic policy. Such events have become more important since Xi shifted more economic decision-making out of government bodies and into party groups during his campaign to consolidate power.

This month’s meeting came after China’s economy grew 5.3% in the first quarter, blowing past economist expectations and boosting confidence in the government’s ability to meet its ambitious annual GDP growth target of about 5%. A tapering off of those green shoots in March, however, had led analysts to call for more policy support to ensure Beijing maintained that momentum.

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Policymakers showed signs of support ahead. The Politburo called for faster issuance of special sovereign and local government special bonds — a major source of funding for infrastructure projects. Fiscal support in the first quarter slowed from a year ago, measured by the budget deficit as a percentage of the economy.

The top leaders also vowed to avoid slipping into complacency, after banking strong growth numbers in the first quarter. “We should avoid slacking off after making good efforts to concretely consolidate and strengthen the recovery momentum of the economy,” they said.

That suggests lessons have been learned from last year, when growth slowed more than expected in the second quarter after a robust beginning to the post-pandemic reopening period.

“A more supportive fiscal stance would help to boost domestic demand,” said Zhiwei Zhang, President and Chief Economist at Pinpoint Asset Management, who said the rate cut signal was a “surprise” given pressures on the currency.

Hotter-than-expected inflation in the US has decreased the likelihood of a Federal Reserve rate cut anytime soon, leading analysts to believe China’s central bank had less room to make rate trims. The People’s Bank of China last lowered its policy rates in August.

The meeting also reaffirmed a pledge to expand domestic demand and vowed to ensure good implementation of a consumer product trade-in and equipment upgrade program. Another focus was advancing “new productive forces” — a slogan that refers to technology and emerging industries — as leaders laid down plans to develop strategic industries.

That effort could exacerbate geopolitical tensions: China is also facing criticism over its cheap exports in sectors such as electric vehicles, which the US and European Union say are a symptom of industrial overcapacity.

“The probability of achieving the around 5% growth goal has increased further,” said Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Plc. That’s because the meeting shows that top leaders are aware of concerns that “policy implementation may ease up after a better-than-expected first quarter,” he added.