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3 Apr 2014
China's Premier Li sends third easing signal - Nomura
FXStreet (Bali) - Zhiwei Zhang, Economist at Nomura, notes yet another sign of easing measures coming in China, after Premier Li Keqiang chaired a State Council meeting to roll out measures to support growth.
Key Quotes
"The meeting focused on shantytown renovations, railway construction, and extending preferential tax policy to more small companies. The Meeting revealed that China will build more than 6,600km of new railway in 2014, a 1000km increase from 2013, 80% of which will be located in the middle and west regions."
"Shantytown renovation and railway investment were discussed in past State Council meetings, but this Meeting clarified financing sources. This is important in our view, as it suggests credit supply (as measured by total social financing) may pick up in Q2. For shantytown renovations, the decision was taken to “let China Development Bank to issue special home financing bond to the Postal Saving Bank and other investors”."
"In addition, the government also “encourages commercial banks, pension fund, and insurance institutions to actively participate in shantytown renovations”. For railway construction, it was decided to deepen railway investment and financing system reform, and set up a railway development fund. This will also try to attract social capital investment, aiming to fund RMB200-300bn each year. China will also issue railway construction bonds totalling RMB150bn this year."
"These measures clearly show that the pace of policy easing is picking up. Premier Li sent the first signal during the State Council meeting on 20 March and the second signal during his trip to Liaoning province on 26 March. This third signal from Wed's State Council meeting reinforces our view of policy easing."
"Economic momentum may have stayed weak in March. We expect Q1 GDP growth at 7.3% y-o-y, with risks to the downside. Growth likely will drop below 7% in Q2 or Q3, without a pick-up in policy easing. We reiterate our view that both monetary and fiscal policies will be loosened in Q2. We expect a cut in the reserve requirement ratio by 50bp in Q2 and another cut in Q3. The likelihood of an interest rate cut is rising as well, although it is not yet our baseline view."
Key Quotes
"The meeting focused on shantytown renovations, railway construction, and extending preferential tax policy to more small companies. The Meeting revealed that China will build more than 6,600km of new railway in 2014, a 1000km increase from 2013, 80% of which will be located in the middle and west regions."
"Shantytown renovation and railway investment were discussed in past State Council meetings, but this Meeting clarified financing sources. This is important in our view, as it suggests credit supply (as measured by total social financing) may pick up in Q2. For shantytown renovations, the decision was taken to “let China Development Bank to issue special home financing bond to the Postal Saving Bank and other investors”."
"In addition, the government also “encourages commercial banks, pension fund, and insurance institutions to actively participate in shantytown renovations”. For railway construction, it was decided to deepen railway investment and financing system reform, and set up a railway development fund. This will also try to attract social capital investment, aiming to fund RMB200-300bn each year. China will also issue railway construction bonds totalling RMB150bn this year."
"These measures clearly show that the pace of policy easing is picking up. Premier Li sent the first signal during the State Council meeting on 20 March and the second signal during his trip to Liaoning province on 26 March. This third signal from Wed's State Council meeting reinforces our view of policy easing."
"Economic momentum may have stayed weak in March. We expect Q1 GDP growth at 7.3% y-o-y, with risks to the downside. Growth likely will drop below 7% in Q2 or Q3, without a pick-up in policy easing. We reiterate our view that both monetary and fiscal policies will be loosened in Q2. We expect a cut in the reserve requirement ratio by 50bp in Q2 and another cut in Q3. The likelihood of an interest rate cut is rising as well, although it is not yet our baseline view."