After a routine State Council meeting chaired by Premier Li Keqiang on Monday, the cabinet said it had decided to improve weak links in the economy by accelerating key infrastructure projects and encouraging private investment.
To Goldman, it was a signal of renewed easing. The firm’s economists, led by Yu Song and MK Tang, wrote in a note dated September 6 that the statement “sent out a clear signal of another round of policy loosening”.
Meanwhile at JPMorgan, economists led by Grace Ng and Haibin Zhu, said two days later that the policy stance “will unlikely become more expansionary”.
The different views between the two leading investment banks reflect the growing difficulty in forecasting the pace and degree of China’s policy moves, despite Beijing’s general pro-growth position.
China has said repeatedly that it will maintain prudent monetary policy and proactive fiscal policy, but the general statements are losing relevance in a rapidly evolving economy which is forcing observers to try to squeeze meaning out bureaucratic jargon.
For Goldman Sachs’ China economists, which also include Zhennan Li and Maggie Wei, the 1,070-character statement on Monday, together with Beijing’s decision to send “inspection teams” to whip local cadres into line on investment, “are important signals that the government intends to loosen cyclical policy for the second time this year”. The initial round was in the first quarter when Chinese banks pumped in an unprecedented amount of credit to aid growth.
However, their counterparts at JPMorgan, including Marvin Chen, said the message from Monday’s meeting was merely to dispel concern that fiscal support would dissipate.
“The government … is aiming to maintain largely stable fiscal support for the rest of the year, though the policy stance will unlikely become more expansionary in our view,” they wrote.
But one thing is clear: the central government is ditching big-bang measures such as all-out fiscal stimulus, opting for more targeted economic management.
For instance, the central bank has steered away from headline-grabbing cuts to interest rates and bank reserve ratios, preferring instead to make lower-profile day-to-day moves in the interbank market to influence interest rates and available funding.
And it could just be working. After a slew of weak economic indicators from investment to bank lending in July, the purchasing managers’ index, a measure of factory activity, surged to a near two-year high in August, while imports also recorded the first monthly growth in August since October 2014, reflecting improved domestic demand.