China: Stimulus picks up ahead of CPC Congress in ‘22
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China is sending a clear signal of stimulus as stability is the key word in 2022 ahead of the 20th CPC National Congress in the autumn.
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Stimulus will likely be calibrated to drive a moderate recovery back to trend growth. Recent comments from Chinese think tanks point to a GDP growth ‘target’ of “5% or higher” after hitting around 3% in H2 2021.
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2021 has been a year of ‘crackdowns’ and new regulations creating uncertainty over China’s economic strategy. We believe the pace of new regulation is likely to slow down but not go away. It will benefit SME’s while weighing on big tech.
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A turn in the business cycle normally points to upside for the Chinese stock market. While it may be challenged by a more difficult global risk environment, we look for decent returns in Chinese equities in 2022.
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Easing of monetary policy while the Fed is tightening should underpin a gradual turn of USD/CNY.
After being surprisingly quiet on the stimulus front for some time, China has recently sent a clear signal that focus for 2022 will be on stabilizing the economy. The message from the annual three-day Central Economic Work Conference (CEWC) in December, with participation by President Xi Jinping, could not have been clearer with the Chinese character for stability mentioned 25 times in the closing statement. Below some key quotes:
“China's economic development is facing a triple pressure of demand contraction, supply turbulence, and weakening expectations”.
“… next year we will hold the 20th Party Congress, which is a major event in the political life of the Party and the country. We shall maintain a stable and healthy economic environment…”.
“All regions and departments shall assume responsibility for the stability of the macroeconomy, all parties/aspects shall actively launch policies conducive to economic stability, and the release of the force of the policies shall be appropriately earlier.”
“We shall ensure the intensity of fiscal spending and accelerate the progress of spending. Implement new policies to reduce taxes and fees, strengthen support for small and medium-sized enterprises… and carry out appropriate forward-thinking infrastructure investment... We shall guide financial institutions to increase support for the real economy.
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