Article/Wu Ge, columnist of Sina Financial Opinion Leader (WeChat official account kopleader)
In the current good employment situation, the time for comprehensive stimulus is not yet. The "policy bottom" may have appeared, but it often takes a process from the "policy bottom" to the "economic bottom", and the economic bottom may appear in the second half of next year.
Core point:
1. Recently, the PMI of the Statistics Bureau and Caixin both declined to the vicinity of the boom dry line, and the economic slowdown is more obvious. Canton Fair data also shows that exports are slowing down. Nevertheless, the momentum of domestic demand is still supported due to the positive impact of increased infrastructure financing support, the resilience of real estate investment and the adjustment of individual income tax.
2. Under the protection of the central bank's multiple RRR cuts and open market operations, the monetary supply constraint has been marginally relaxed, but subject to the lagging adjustment of financial supervision and capital demand, M2 and social financing growth is expected to remain low and volatile. Compared with other emerging market economies, the depreciation of RMB has been limited since this year. It is expected that monetary authorities will seek a balance between improving the tolerance of exchange rate fluctuations and preventing excessive depreciation, and may not stick to a fixed point.
3. It is worth noting that the recent Politburo meeting did not mention the relevant content of real estate and deleveraging, and the "policy bottom" may have emerged. Tax reduction measures will continue to be introduced, and fiscal policies will become more active. In the current good employment situation, the time for comprehensive stimulus is not yet. From the perspective of historical laws, it often takes a process from the "policy bottom" to the "economic bottom", and economic bottoming and stabilization may occur in the second half of next year.
Body:
1、 The economic slowdown is more obvious, but the momentum of domestic demand is still supported
Recently, the PMI of the Statistics Bureau and Caixin both fell near the boom and bust line, and most sub indicators such as production and orders fell significantly, indicating that the economy is facing further pressure to slow down. In terms of price, the supply constraints are relaxed and the oil price is adjusted. The year-on-year growth rate of PPI will continue to fall, and CPI will also be difficult to rise in the short term.
Canton Fair data also shows that exports are slowing down. In the early stage, the "preemptive" effect of trade between China and the United States may help China's export growth, but recently the export of related goods subject to tariff increases has declined significantly, and China's export to the United States has become flat as a whole. Although the policy of increasing export tax rebates for some commodities can play a certain role in stimulating, the recent PMI export orders continued to decline, and the export turnover of the Canton Fair also showed the first negative growth since 2016. Against the background of a further slowdown in global momentum, China's exports are facing greater downside risks in the short term.
The momentum of domestic demand is still supported by the increased support for infrastructure financing, the resilience of real estate investment and the adjustment of individual income tax. In terms of manufacturing investment, with the easing of the supply side constraint margin and the lagging effect of high profits in the early stage, manufacturing investment is still resilient in the short term. In terms of infrastructure investment, the recently issued policies have strengthened the support for infrastructure financing. The intention of stabilizing infrastructure is clear, and the infrastructure investment has stabilized slightly or will decline slightly. In terms of real estate investment, the land market is gradually cooling down, and the land purchase fee will be high and down. However, considering that the interest rate has been high and down, the construction and installation investment is expected to stabilize, and the real estate investment offset by the two is still relatively resilient in the short term. In terms of consumption, although the sales of automobile and other categories are still sluggish, the recent reduction of individual income tax will form a certain support for residents' consumption.
Note: The personal income tax here has been processed on a 6-month moving average basis.
2、 The constraints of monetary credit expansion still exist, and the RMB exchange rate may not stick to the point
Under the protection of the central bank's multiple RRR cuts and open market operations, the monetary supply constraint has been marginally relaxed, but constrained by the lag of financial regulation and capital demand adjustment, M2 and social financing growth is expected to remain low and volatile. The inter-bank market liquidity will continue to be abundant, but the credit expansion in the physical field is still limited. Under strict financial supervision, off balance sheet financing continued to shrink. In the fourth quarter, there was little room for local bond issuance. Corporate bond financing was also sluggish under low market risk appetite. Recent policies have focused on solving the financing problems of private and small and medium-sized enterprises, but the actual effect remains to be observed.
Compared with other emerging market economies, the depreciation of the RMB has been limited since this year. It is expected that the monetary authorities will seek a balance between increasing the tolerance of exchange rate fluctuations and preventing excessive depreciation expectations, and may not stick to a fixed point. The dollar index has risen by about 8.6% since its strength in April, and the RMB depreciated by about 9.4% during the same period, which is roughly the same as that of other emerging market countries. On the one hand, the central bank has managed excessive unilateral depreciation expectations (to prevent panic under herding effect), and on the other hand, it has actually tolerated more exchange rate flexibility (conducive to coping with external shocks).
Note: The calculation period here is from April this year to now when the US dollar index has strengthened.
3、 The policy bottom is gradually clear, and the economic bottom still needs time
The recent Politburo meeting did not mention the relevant content of real estate and deleveraging, and the "policy bottom" may have emerged. Since this year, the pace and direction of policies in all aspects have not been completely consistent, but at the current time point, most of them have shown signs of marginal relaxation. For example, since the beginning of the year, the central inter-bank interest rate level has continued to decline, tax cuts and other measures have also been introduced, and the fiscal policy will become more active. The new rules and regulations of asset management have slowed down the pace and intensity of supervision. Nevertheless, in the current good employment situation, the time for comprehensive stimulus is not yet.
According to historical laws, it takes a process from "policy bottom" to "economic bottom", and the economic bottom and stability may occur in the second half of next year. The transmission from macro policies to the real economy and the adjustment expected by micro entities often take time. Although the policy bottom has appeared, the economic bottom still needs time. For example, if we take a monetary view of the economy, M2 has recently shown signs of bottoming out. According to the rule that M2 is about one year ahead of nominal GDP, the economic bottom will appear in the second half of next year.
4、 Basic conclusions
First, recently, the PMI of the Statistics Bureau and Caixin both declined to the vicinity of the boom and bust line, and the economic slowdown is more obvious. Canton Fair data also shows that exports are slowing down. Nevertheless, the momentum of domestic demand is still supported due to the positive impact of increased infrastructure financing support, the resilience of real estate investment and the adjustment of individual income tax.
Second, under the protection of the central bank's multiple RRR cuts and open market operations, the monetary supply constraint has been marginally relaxed, but subject to the adjustment of financial regulation and lagging capital demand, M2 and social financing growth is expected to remain low and volatile. Compared with other emerging market economies, the depreciation of RMB has been limited since this year. It is expected that monetary authorities will seek a balance between improving the tolerance of exchange rate fluctuations and preventing excessive depreciation, and may not stick to a fixed point.
Third, the recent Politburo meeting did not mention the relevant content of real estate and deleveraging, and the "policy bottom" may have emerged. Tax reduction measures will continue to be introduced, and fiscal policies will become more active. In the current good employment situation, the time for comprehensive stimulus is not yet. From the perspective of historical laws, it often takes a process from the "policy bottom" to the "economic bottom", and economic bottoming and stabilization may occur in the second half of next year.
(The author of this article introduces: Chief Economist and Assistant General Manager of Huarong Securities Co., Ltd.)
