China’s new pattern of stimulus excludes iron ore

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Welcome to the new post-iron ore Chinese stimulus pattern. There’ll be some stimulus for infrastructure but it is smaller than property and less steel-intensive plus the property adjustment will keep a lid on it via weak land sales. TSLombard with the note:

Beijing is shifting gears, moving from marginal easing to broader stimulus measures. As forecast, the Sixth Plenum has proved a turning point: after the elite political gathering, the PBoC signalled a dovish turn and announced a 50bps RRR reduction. Meanwhile, the Politburo yesterday confirmed easier property-sector policy and more expansive fiscal measures; we expect a recordhigh special-purpose bond quota for 2022 in the region of RMB 4trn. Our base case is playing out: China activity is stabilizing while credit and infrastructure growth are bottoming. We forecast GDP to reach 4.7% yoy in 2022. The Central Economic Work Conference at the end of December will give a clearer idea of the official GDP target – the number rumoured is 5-5.5% yoy. The broader easing signal marks a fresh stage in the first stimulus cycle of the “Common Prosperity” era. Under the new growth paradigm, China first ramped up support for government favoured green/tech/new infrastructure in an attempt to stabilize activity without using traditional credit levers. We think this policy pattern will repeat and open up a new type of defensive equity and credit play, when China slows policy–favoured-sectors are likely to outperform.

China growth has been decelerating rapidly since July but Beijing has turned more accommodative only gradually. A slower transition from neutral to stimulus is part of the new “cross cyclical” economic framework (details here). Politics was the other key driver of a delayed stimulus shift. Central authorities were not in panic mode and so chose to wait until the next scheduled central political gathering (Sixth Plenum) before signalling a shift to broader easing.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.