Fiscal, monetary settings stay steady next year
China will maintain its “proactive” fiscal policy and “prudent” monetary policy next year, said a statement released after the conclusion of the annual Central Economic Work Conference on Friday.
A “prudent” monetary policy includes keeping the growth of credit and social finance aggregates at a “reasonable” level, said the statement. Any macroeconomic policies must conform to the “spirit of reform”, indicating that monetary policy might take new forms.
The meeting didn’t release a GDP growth target for 2014, but economists believe it will remain the same as this year at 7.5 percent.
Zhang Qi, a Shanghai-based economist with Haitong Securities Co Ltd, said that monetary policy next year might in reality be tighter than the “prudent” setting that’s often mentioned.
“Central bank operations recently have already been in the direction of tightening. Monetary policies won’t be any looser next year, in the broad policy frame of ‘deleveraging’,” said Zhang.
In the week ended on Friday, the People’s Bank of China drained a net 37 billion yuan ($6.1 billion) from the money market through open market operations.
That amount compared with a net injection of 56 billion yuan during November.
Australia and New Zealand Banking Group Ltd said in a research note on Friday that tight liquidity will likely persist at least until the Lunar New Year, which indicates that the Chinese authorities intend to force commercial banks to reduce their leverage ratios.
Lunar New Year starts at the end of January.
“Against this backdrop, whether the liquidity tightness will continue next year will largely depend on the deleveraging process of the Chinese commercial banks,” the bank wrote.
Chinese banks extended 624.6 billion yuan of new yuandenominated loans in November, almost 24 percent higher than the 506.1 billion lent in October.
The figure topped both the 550 billion yuan median forecast in a poll of 11 economists by The Wall Street Journal and the 580 billion yuan median estimate of 41 analysts surveyed by Bloomberg News.
Rapid credit expansion runs against Beijing’s goal of deleveraging an economy that’s laden with debt on the back of rapid growth.
The stock of debt surged to 200 percent of GDP at the end of 2012, from 129 percent in 2008, when authorities moved to stimulate the economy with a 4 trillion yuan investment package to counter the impact of the global financial crisis.
“The ‘prudent’ monetary policy stance will likely be kept, but tightening has already started,” wrote British bank Barclays Plc in a research note on Wednesday, commenting on the CEWC.
Barclays expects the M2 growth target to be kept at 13 percent in 2014, compared with actual growth of more than 14 percent year-to-date. And that may translate to tighter liquidity.
Commenting on fiscal policy, Zhang said that being “proactive” doesn’t mean Beijing will stimulate the economy with investment, as it has done previously.
“Fiscal policy will mainly target job creation, but Beijing will be very careful, so as to not put money into the many industries that are already experiencing severe excess production,” he said.