19 August 2019
China may tighten housing policy as the economy shows signs of picking up steam. Photo: Reuters
China may tighten housing policy as the economy shows signs of picking up steam. Photo: Reuters

China meeting hints at policy fine-tuning after strong Q1

The Chinese Communist Party’s Politburo meeting last week delivered several important messages to the financial markets about forthcoming policy moves.

According to mainland media, the meeting has highlighted a few points pertaining to an updated economic picture.

First of all, the authorities said first-quarter economic growth “was better than expected”.

Second, as a cornerstone of the housing policy, it was reiterated that “houses are for living in, not for speculation.”

Third, deleveraging plan was also mentioned again after a while.

All these suggest that Beijing, given the economic improvement in recent months after a string of supportive measures, might fine-tune its policy stance.

Following the news, the immediate reaction in the stock market was negative. The Shanghai benchmark index tumbled 1.7 percent on Monday.

But from a longer-term view, the message should be seen as positive.

China’s monetary easing, fiscal stimulus, tax cuts, and various reforms have started to take effect, as reflected by a string of data, such as GDP, social financing, PMI and exports.

Which is why Beijing is considering to marginally dial back some extra supportive moves, an initiative that will help prevent economic overheating.

The property sector seems to be among the major targets.

Aligning with the central government thinking, several cities in China have resumed property tightening measures recently.

For example, Changsha in central China has removed tax incentives for second-home buyers. In another case, a document that has gone viral online suggested that the Wuhan municipal government aims to suppress new-home price growth at below 5 percent between 2019 and 2021. Local officials have dismissed the speculation, but doubts persist.

Overall, it is quite likely that cities with strong property markets could lean on tightening again, or at least abandon the easy stance of the past six months.

Meanwhile, Beijing is not overly complacent despite the recovery signs.

The Politburo meeting warned that the economy still facing “downward pressure”, mainly due to structural and systematic factors. It’s the first time the top decision-making body made such a statement.

Policymakers also said China would deepen reform and expand the opening-up, a sign that Chinese authorities are well aware of deep-rooted issues in the economy and that Beijing sees the need to take some action.

The full article appeared in the Hong Kong Economic Journal on April 23

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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