There is no change to the epochal shift in China’s macro settings for property. The dream is over. Goldman has more.
President Xi chaired the July Politburo meeting today which set the tone for the broad policy stance in 2H of this year. The statement following the meeting reiterated the “Dynamic Zero Covid” policy stance and focused on implementing the already announced policy measures. On property, the statement restated “housing is for living in, not for speculation” (which was mentioned in the April Politburo meeting), and highlighted that local governments should take responsibilities in “guaranteeing the delivery of homes”, consistent with China Banking and Insurance Regulatory Commission (CBIRC)’s recent statement.
Main points:
1. President Xi chaired the July Politburo meeting today. The statement was mostly a reiteration of implementing the already announced measures, though on the fiscal front, today’s statement hinted at additional local government bond issuance quota. Specifically on fiscal policy, the statement stated it will make the full use of local government special bond (LGSB) proceeds and the limit on outstanding LGSB this year, which according to our calculation, could imply at most another RMB 1.5 trillion LGSB issuance quota available for use this year (according to the MOF and our estimates, the actual outstanding LGSB amount is RMB 20.4 trillion, assuming the annual quota will be fulfilled by year-end, and the limit on the overall LGSB outstanding this year is RMB 21.8 trillion). On monetary policy, Politburo reiterated that liquidity conditions should be reasonably ample, credit support should be stepped up, and policymakers would make the best use of the newly announced credit quota for policy banks and infrastructure investment fund. In recent State Council meetings, policymakers announced an additional RMB800bn policy bank loan quota, and another RMB300bn credit support by policy banks to facilitate infrastructure investment.
2. The July Politburo meeting statement toned down the nationwide full-year economic growth target by requiring “large and capable” provinces (likely referring to coastal provinces which are less hit by Covid lockdowns, in our view) to work hard on achieving full-year economic targets, which stood in contrast to the statement of “working hard to achieve full-year targets” in the April meeting.
3. Today’s statement restated that policymakers would stick to the “Dynamic Zero Covid” policy stance, and highlighted “political considerations” behind this decision. However, policymakers also required to ensure smooth operations of key functions of the society, while working on tracking new variant of Covid and development of Covid treatment. This may imply potential adjustments to the Dynamic Zero Covid policy implementation similar to what we saw in late June as the Covid situation evolves.
4. The discussion around property is not new. The July Politburo meeting emphasized “housing is for living in, not for speculation”, which was mentioned in the April Politburo meeting as well, and added that local governments should take responsibilities in “guaranteeing the delivery of homes”, consistent with CBIRC’s recent statements.
Relatedly, an FT article on July 28 reported a potential RMB 200bn program by the PBOC to help facilitate property completions. We think regulators and local governments are focusing on continuing construction of presold projects while keeping the broad policy on housing unchanged.
5. In response to the rural bank event in Henan, today’s statement required policymakers to ensure financial stability and properly handle risks from rural banks (Media report suggests policymakers would use 320bn LGSB quota to replenish capital for small and medium-sized banks). On platform company regulation, the statement echoed the positive tone from the April meeting and urged policymakers to complete regulation on platform companies and facilitate a batch of sample investment projects with “green light”. Politburo also discussed securing the supply of food and energy, stabilizing prices, supporting employment of college graduates and working hard on improving people’s livelihood, which are reiteration of recent policy communications.
6. In general, the July Politburo meeting suggests to us that the “Dynamic Zero Covid” policy stance is here to stay, and while full-year economic targets appear challenging on a nationwide basis. Policymakers would maintain their supportive stance, in particular continue to push for infrastructure investment to support the overall economy. The lack of mentioning of a potential property fund, which was widely discussed over media in recent days might appear disappointing to investors, but there is still a chance that PBOC and relevant government institutions would follow up and announce concrete supportive measures to the property sector in the next few days/weeks.
