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The 2016 conference put more emphasis on “financial risk control and prevention” and the “need to curb asset bubbles” than the previous year’s and considered that “reducing corporate leverage while controlling overall leverage is the top priority”. The government plans more “marketoriented” debt-equity swaps. But that cannot be the main way to lowerFromcorporateusingTwitterdebtgivenforpolicythat pronouncements,theseswapstendtotobeuntraditional

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Pemphasis on “financial risk control and prevention” and the “need to curb asset bubbles” than the previous year’s and considered that “reducing corporate leverage while controlling overall leverage is the top priority”. The government plans more “marketoriented” debt-equity swaps. But that cannot be the main way to lower corporate debt given that these swaps tend to be financially unattractive for Chinese banks, and the government has an incentive not to weaken the banks’ balance sheets too much. Therefore, containing new credit extension will have to be the key pillar.

It is thus more likely that the government will set the GDP growth target for 2017 lower than the 6.5-7 percent for 2016 and/or will interpret the growth target less strictly. However, in light of the 19th National Congress of the Communist Party of China in autumn, a drastic change of course is unlikely this year. We (at Oxford Economics) project 6.3 percent GDP growth.

The conference concluded that fiscal policy should be “more proactive and effective” in 2017, from “more proactive” a year earlier. This confirms that, after having embarked on a more expansionary “official” fiscal policy (financed by government bond issuance) in 2016 in response to concerns about the limits of credit-based growth support, the policy will continue on that path this year. Nonetheless, much of the fiscal activity in China continues to be quasi-fiscal, financed by loans from the financial system.

Policymakers want to avoid high-profile measures such as reducing quota or imposing new restrictions,However,ifthispossible.interventionBut, to bringhascausedoutflowsforeigndownexchangeto a level that isreservesconsistenttofallwithtostable$3trillionforeignin exchangethetwoyearsreserves,bythetheyendmayof end up2016.havingThetomarket’sresorttorealizationsuch steps. thatTheforeignconferenceexchangesuggestedreserves localcannotmeasurescontinueto containtofallindefinitelyhousingbe maintained,speculationslowingaboutarealfasterestatepace constructionofdepreciation.in2017,In2017,whilethemedium

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Meanwhile, to contain the The depletion author of is foreignhead of exchangeAsia Economicsreserves, policymakersat Oxford Economics.are likely to continue to tighten up enforcement of foreign exchange regulations and take further steps to reduce financial outflows such as containing outbound investment and overseas lending.

Policymakers want to avoid high-profile measures such as multiculturalreducingquotabusinessorimposingcommunity.

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