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%.


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