The Daily Update: Proactive, Prudent and Flexible

We recently wrote about China’s tilt towards easing, in the face of a property-market downturn, hence economic slowdown. And on Monday we heard from the Communist Party’s Politburo, who said it will look to boost the healthy development and positive cycle of China’s real-estate sector. Further speculation of property policy easing came after the “houses are for living in not for speculation” rhetoric was dropped. We expect to hear more on policy loosening in the coming weeks and at the annual CCDI Plenum in January.

The People’s Bank of China will remain accommodative in 2022, stating, at the Politburo: the macroeconomic policies will be stable in 2022. Proactive fiscal policy will be more targeted and sustainable, with prudent monetary policy flexible and appropriate, and liquidity ample. Policymakers will implement strategies to expand domestic demand, as well as expand effective investment and promote continued recovery in consumption. The competitiveness across the manufacturing sector will remain supported, and there will be more targeted lending to businesses. Homebuyers' housing demands will be reasonably met, and healthy development of the property sector will be promoted. And the government will keep economic growth running at a reasonable pace in 2022.

Clearly, economic stability is of great priority to Chinese policymakers, evidenced by the 0.5% RRR cut announced earlier this week. Effective on the 15th December, the cut will release ~188bn worth of liquidity and the average RRR for banks will stand at 8.4%. We do not view the above policy announcements as a fundamental shift to policy, rather a more targeted use of the nation's wealth of firepower to cope with any downward pressure on economic growth. Premier Li Keqiang noted on Monday that China has room for a variety of monetary policy tools, including further RRR cuts. We also had the FX reserves come in at substantial USD 3.22tn for November, up from October’s reading.

Meanwhile, China and Hong Kong’s push to internationalise the renminbi will drive reform and promote further opening up of the nation’s financial markets. The offshore renminbi remains supported, and is one of the best performing currencies against the dollar so far this year, having gained over 5% on a total return basis. The ~2.4% carry against the USD remains supportive to the Renminbi Bond Fund’s performance.