Stability top focus of regulatory policy

China will launch financial regulatory policies conducive to economic stability, including those satisfying demand for infrastructure investment, somewhat earlier than expected.

The China Banking and Insurance Regulatory Commission said on Tuesday it will launch targeted measures to support major projects under China's 14th Five-Year Plan (2021-25) and the implementation of national development strategies.

The regulator will also guide financial institutions to increase the issuance of medium and long-term loans to the manufacturing sector and to step up support for micro and small enterprises, scientific and technological innovation, as well as green development.

The annual Central Economic Work Conference held in Beijing last week called on all regions and departments to assume responsibility for stabilizing the macroeconomy, and all sides to take the initiative and launch policies conducive to economic stability. The conference also stressed that the release of the policies should be carried out at an early date.

"We expect to see a boom in infrastructure investment and construction next year. Over the same period, major favorable policies will be introduced in central, western and northeastern regions of China," said Lian Ping, chief economist of Zhixin Investment and president of the Zhixin Investment Research Institute.

Wen Bin, chief analyst at China Minsheng Banking Corp Ltd, said the country will let infrastructure help underpin the economy. Bank credit issuance, fiscal expenditure and the use of funds raised via special-purpose local government bonds will hopefully shift to an earlier date.

Wen said fiscal policies should be more targeted toward key areas and weak links within the economy, as well as areas that will bring prominent social benefits. He also advised the government to launch new tax and fee reduction policies earlier next year to step up support for market entities.

China's macroeconomic policies will become neutral or ease marginally in 2022 as the country has shifted the main focus of its policies toward stabilization of growth amid recently increased risks of an economic downturn, said Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Bank (Hong Kong) Ltd.

"Slight structural policy adjustments have been made in face of the risk of an economic downturn. The People's Bank of China, the central bank, has sent a clear signal via a recent cut in the reserve requirement ratio of eligible financial institutions (by 50 basis points)," Ding said.

Action should be taken to safeguard macroeconomic stability and keep major economic indicators within an appropriate range, it was stated at a meeting of the Political Bureau of the Communist Party of China Central Committee on Dec 6.

As the PBOC has repeatedly emphasized that it will improve the stability of credit growth, Ding forecast that the growth of China's total social financing will remain between 10 percent and 11 percent next year, exceeding the estimated nominal GDP growth of 8 percent to 9 percent. Real GDP growth is expected to reach 5.3 percent.

He highlighted the importance for China to set a growth target to stabilize market expectations and said China's credit policy will become increasingly supportive toward the real economy.

"The PBOC will adopt targeted measures for liquidity injection, such as relending and a new monetary policy instrument to support carbon emissions reduction projects, in an effort to bolster the economy," Ding added.

Considering that the average RRR of China's banking sector is already quite low, he said he does not expect the RRR cut to be used as a conventional instrument to inject liquidity into the economy, but rather as an instrument to send a signal to the market if the economy slows down rapidly or the unemployment rate rises quickly.