From Credit Suisse:
■ Growth vs reform: The current waxing and waning of Chinese policy occurs as the authorities try to ensure economic stability while they undertake the very large task of economic reform. Over the last few months reform was “winning” with an effort to reduce some of the excesses in the financial system and housing market. As a consequence, May economic data were clearly sluggish. However, policy may now be shifting.
■ Growth: Today there has been news suggesting policy makers will again focus on growth. First, the headline article of Xinhua (the official press agency of China: its president is a member of the Central Committee of the Communist Party) outlined the need for “loose credit conditions”, for policy makers to “lower real interest rates…” and for “…fiscal policy to be used to promote infrastructure investment…”. In the past, Xinhua reports have led policy actions. Second, the Chinese Ministry of Finance announced its intention to improve liquidity in the government bond market. Government 10-year bond yields are lower today. We think the announcements are enough to suggest the authorities will try to ease policy to support economic momentum as we head into 2H17 and closer to the 19th Party Congress.
