Key Takeaways
Government interventions to shore up China’s equity
markets show the authorities are mindful of the risks of
allowing a free fall, but there is little indication that they
are meaningfully gearing up to tackle the souring of
investor confidence in the economy.
That said, rising attention given to ‘productive forces’ by
the Politburo could imply that the authorities are
concerned by the near stalling of total factor productivity
since the end of 2020. This could spur further easing to
target the key building blocks of potential growth.
Should this policy pivot materialise, it would however
risk embedding ‘low-flation’, as a supply-side biased
policy response leans on investment and risks building
excess capacity.
Policy continues to gain traction, as illustrated by robust
credit flows and a further loosening of our China
Financial Conditions Index (CFCI). January’s credit flow
included an unusually large contribution from ‘shadow’
banking. But there is little indication that the authorities
are about to unchain it, even if rising bank to non-bank
financial sector links appear to have been condoned.
The desire to hold the line on de-risking will still result in
a targeted and incremental approach, even if potential
growth moves up the priority list. Overall, we remain
somewhat cautious about the Year of the Dragon and
our 2024 growth forecast remains at 4.4%.