China: More easing measures from Beijing to boost domestic growth - Nomura

According to analysts at Nomura, as the China’s domestic slowdown may be worse than expected and considering the potential fallout from a trade war, they expect Beijing to roll out more easing measures, both monetary and fiscal, to boost domestic demand and maintain stable growth.

Key Quotes

“After the recent reserve requirement ratio (RRR) cut, which went into effect on 5 July, there have been further signs of policy easing in recent weeks, including a possible postponement of the release of new rules on banks’ wealth management products (WMPs), adjustments to an anti-pollution campaign that was deemed too stringent in its past “one-size-fits-all” approach, some softening in the government’s deleveraging drive and, more importantly, a softening in the regulations of the shantytown renovation program.”

“We believe more easing measures are likely in H2, including: 

• At least one more RRR cut this year, likely 100bp; 
• Increasing commercial bank loan quotas; 
• More direct funding from either pledged supplementary lending (PSL; China’s version of QE, earmarked for housing in low-tier cities) or central and local government special bonds.
• Leaving policy and quasi-policy rates unchanged despite further Fed rate hikes;
• Faster fiscal spending at the central and local government levels, underpinned by faster issuance of Treasury and local government bonds; 
• Easing restrictions on quasi-fiscal measures for infrastructure investment, such as public-private partnership (PPP) projects and policy-bank lending; 
• The central government implicitly allowing some major Chinese cities to ease their property price controls and scrap other measures that distort the property market.”