Focus on 'Risk Management' Not Real Estate Stimulus
Attention on Future Policies Amid Weak Q2 Growth Rate
At the 3rd Plenary Session of the 20th Central Committee of the Communist Party of China (the 3rd Plenum), which determines the direction of China's economic policy, "high-quality development" was mentioned as a core task. This is widely interpreted as a signal that expansionary policies will not be introduced. Although specific directions and detailed policies have not yet been disclosed, it appears unlikely that measures capable of moving the market will be taken.
According to China's Xinhua News Agency on the 18th, the 3rd Plenum of the Central Committee of the Communist Party of China was held at the Jingxi Hotel in Beijing, starting on the 15th and concluding on the 18th. The Party Central Committee unanimously passed the "Decision of the Party Central Committee on Deepening Comprehensive Reform and Promoting Chinese-style Modernization." It was also reported that on the opening day, the General Secretary, representing the Central Political Bureau, delivered a work report and explained the draft of the "Decision."
In a statement, the Party Central Committee identified real estate, local government debt, and small and medium-sized financial institutions as key risks related to the national economy but did not present specific solutions. It only explained that "various measures must be implemented to prevent and resolve risks and fulfill responsibilities for safe production."
Regarding the future direction of economic policy, Chinese-style modernization through the previously mentioned "high-quality development" and "new quality development" was proposed. The statement emphasized, "Chinese-style modernization has been continuously promoted during the reform and opening-up process, opening broad prospects. Facing complex domestic and international situations, a new scientific and technological revolution, industrial transformation, and new expectations of the people, we must consciously place reform in a more important position and deepen comprehensive reform to promote Chinese-style modernization."
Ken Cheung, Chief Asia FX Strategist at Mizuho Bank, told Bloomberg News that the reiteration of "high-quality development" means there will be no expansionary policies to promote growth in quantity. He pointed out, "Instead of surprising measures to stabilize the real estate market, the meeting only addressed the task of preventing and resolving risks in the real estate market."
As is customary, after the conclusion of the 3rd Plenum, the Party will sequentially disclose detailed contents. Specific policies are more likely to be presented at the Politburo meeting scheduled for the end of this month, where the focus will be on economic issues for this year.
This meeting attracted even more market attention as it opened immediately after the release of China's sluggish economic indicators. On the opening day of the 3rd Plenum, the 15th, China's National Bureau of Statistics announced that the second-quarter gross domestic product (GDP) increased by 4.7% year-on-year. This figure fell short of both experts' expectations (5.1%) and the previous month's figure (5.3%). On the same day, the retail sales growth rate for June was only 2.0% year-on-year, significantly below May's 3.7% and the forecast of 3.3%.
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