Chinese authorities ignited cautious hopes for more concrete policy steps to boost various struggling sectors, after top leaders pledged to “introduce policies that benefit markets.”
The government may be nearing an end of punitive measures imposed on the internet sector, while the central bank could take monetary easing actions within days. The property sector is also expecting incremental policy loosening such as relaxation of restrictions on home purchase, according to analysts.
The Financial Stability Development Committee meeting Wednesday chaired by Vice Premier Liu He signaled a change in policy thinking, with a call to pay more respect to investors’ interests. But that high-level principle will require concrete follow-up to have a real impact and help China achieve its challenging goal of growth of around 5.5% this year.
“As China’s economic czar, Liu He’s status is prominent and his words carry weight and credibility. His remark signals a change in policy direction,” said Hong Hao, head of research and chief strategist at Bocom International Holdings Co. “We will need more time to see the effect in terms of the rolling out and implementation of specific policies.”
Here’s are the policies that can be expected in different sectors:
China’s technology companies have been a focus of Beijing’s crackdown, with Alibaba Group Holding Ltd. and Tencent Holdings Ltd. losing a combined $1.2 trillion in market value from their peaks through Tuesday. But the duo surged after the State Council’s comments, adding back more than $175 billion in just two days. The change in sentiment stemmed from a perception that Beijing punishment was nearing an end and it would support the battered stock market.
“It was clear that stress levels among investors hit very high levels in recent weeks. Macro issues persist, but we’d expect the State Council’s comments to mean some of the worst-case scenarios are off the table,” wrote Bernstein analyst Robin Zhu.
However, several unresolved issues remain. Didi Global Inc., the ride-hailing giant that went public last year over regulators’ objections, still likely faces penalties and must shift its listing from the U.S. Tencent is under investigation for alleged money laundering on its platform, which could lead to fines or regulatory constraints.
Washington and Beijing also need to resolve their differences over the auditing of Chinese companies whose shares trade in the U.S. On Wednesday, the Public Company Accountability Oversight Board insisted that its inspectors must have the same visibility into Chinese audit work papers as they get for businesses based in other countries. While Chinese regulations currently prohibit such access, Beijing has voiced optimism about reaching a resolution.
The financial committee meeting has fanned expectations that the People’s Bank of China will lower the amount of cash banks must keep in reserve, like it did in 2018 and July last year soon after the committee met.
A growing number of economists also anticipate banks will lower their quotes for the loan prime rate, the de facto benchmark lending rate, when it’s announced by the People’s Bank of China Monday.
Economists see April as the next likely window for a policy rate cut, after the PBOC held the interest rate for one-year policy loans steady earlier this month. Many say the PBOC would want to act early before the Federal Reserve’s rate hike cycle leads to more pressure on the exchange rate and capital outflows later this year.
“The probability of an interest rate cut is rising,” said Zhou Hao, senior emerging markets economist at Commerzbank AG.
For the ailing real-estate sector, developer shares and bonds got a boost from the delay in the expansion of a property tax trial. Still, any further policy easing at this point may prove to be too little, too late.
The supportive measures already in place, including facilitation of mergers and acquisitions, looser bank lending and easing of mortgage curbs, have done little to boost the liquidity of distressed developers, according to Bloomberg Intelligence analyst Kristy Hung. Even if bond sales restart soon, demand for developers’ debt would be weak amid shattered investor confidence, she said.
“The downturn has dragged on for months now and investor sentiment has waned” in both the bond and housing markets, she said. “That could undermine the effectiveness of policy support introduced at this point.”
Citigroup ruled out the possibility of broad-based easing for the sector. “The best to expect for now is targeted downside protection for a few names through coordination with local government and financial institutions,” analysts led by Griffin Chan wrote in a note.