Yu, Qiao: Policy quietly relaxed

The central government's announcement after the Politburo meeting on July 22, 2010 implied a subtle change in the tone of official policy. Although the announcement does not contain much new content, Goldman Sachs believes that there are at least two areas of concern: first, Premier Wen Jiabao's latest speech points out more clearly than previous speeches that ensuring a smooth economic growth should be the top priority; second, President Hu Jintao also stressed the importance of strengthening policy co-ordination, And should pay attention to grasp the policy to adjust the intensity and rhythm, these speeches and Wen Jiabao nearly two months of speech spirit is consistent. At the ministry level, in the two-quarter monetary policy report released by the People's Bank of China on August 5, the original wording of "holding control" in different industries was changed to "Help control".　　The People's Bank also deleted the word "balanced delivery" of credit, perhaps reflecting its desire to increase the flexibility of credit policy. The actual implementation of the policy may also be changing. Goldman's industry research shows that some companies have begun to receive investment approvals in July. At the same time, according to domestic media reports, July four commercial banks issued total loans reached 243 billion yuan. This means that July loans should be able to break through the 500 billion dollar goal of one month.　　If the month's loan reaches our current estimate of $600 billion, it may mean that the monetary authorities are more flexible in terms of credit control in the short term. Policy or further easing Goldman believes that the timing of further policy adjustments will depend on data performance. The recent rise in food prices is a temporary phenomenon. As the floods subside, Goldman Sachs expects food prices to return to normal. So a rebound in the CPI may only delay the further adjustment of the policy by 1-2 months.　　Based on current policy stance and external economic conditions, Goldman Sachs expects economic data to continue to fall year-on-year in the coming months, which could further shift the tone and practical stance of the policy towards "guaranteed growth". Low-key easing of existing austerity measures Goldman believes the government is more inclined to covert policy changes. This is because the 2010 two quarter policy is still tightening, in the second half of the year without significant changes in external demand, the government's high-profile shift policy is difficult to give a reasonable explanation.　　Although the Goldman Sachs Economic Research department has cut its GDP growth forecasts for other economies, including the US and Japan, its current projected slowdown is less than it was two years ago. This "recessive relaxation" is very easy to achieve because the austerity measures currently being implemented are more administrative control means. In fact, to keep the current tightening stance unchanged, the government needs to reaffirm and implement the existing policy stance repeatedly. If the government ceases to reaffirm its policy stance or reduce its frequency, the actual policy stance will be relaxed. This is diametrically opposed to the adjustment of market-based instruments such as benchmark interest rates. Unless the government adjusts interest rates, the current policy stance will remain unchanged. The adjustment of interest rates must be announced, which will send a clear policy signal.　　For these reasons, Goldman Sachs expects the statutory reserve ratio and interest rates to remain unchanged for the year 2010. In addition, Goldman Sachs believes that there is no need to implement a massive stimulus policy like the $4 trillion investment of 2008, becauseThe former economic situation is clearly not as bad as it was at the end of 2008. In terms of domestic economic policy/situation, the Government has only just begun to tighten policy in the overheated economy a quarter ago, while domestic tightening in 2008 was at least more than two quarters more than the right time.　　In the external context, the slowdown in external demand has fallen far short of the 2008 level, despite a sustained slowdown in global growth in recent months (at that time, the year-on-year decline in export growth was 60% per cent). The area of investment is particularly noteworthy. So far, austerity policies include overall credit control and austerity measures for specific industries, including, in particular: 1, the full range of restrictions on high pollution and high-energy industries, such as steel and cement, which are aimed at reducing pollution, but creating downward pressure on investment in manufacturing; 2　　For local government financing platform clean-up and loan restrictions, the goal of these austerity measures is to control local government financing risks and irregularities, the underlying construction investment caused downward pressure; 3 real estate related measures. From the control of pollution/energy consumption, after many revisions of GDP history data, the government released data shows that 2010-year GDP energy consumption needs to fall by about 5% to achieve the "Eleven-Five plan" in the unit GDP energy consumption of 20% target, which is roughly equivalent to 2007 and 2008 unit energy consumption of the actual decline. Goldman Sachs expects unit energy consumption to fall markedly in the three quarter, so there may be some room for adjustment by the end of the year. Moreover, the Government has never made it clear that energy consumption must exceed the Eleven-Five planned targets.　　If the actual results are slightly lower than those targets, the government can still announce the completion of the target. Goldman Sachs believes there is limited room for overall real estate-related policies, especially at the central government level. This is because the Government is concerned that once the policy is relaxed, real estate prices will rise again sharply, which could spark social discontent.　　At the local level, there are likely to be small adjustments in policy. Goldman Sachs believes the infrastructure investment/local Government financing platform is the most likely area for policy easing. China should step up its infrastructure projects because investment in infrastructure projects has been suppressed for a long time before 2008, so Goldman Sachs is optimistic about the economic and social benefits of most of these projects.　　While international commodity prices are relatively low, China, as the largest net importer, should, in particular, build up infrastructure projects, and China is fully capable of making more investments. Goldman Sachs believes that the total loan limit of $7.5 trillion in 2010 may be relaxed. The annual credit target is a target set by the government at the start of the year, rather than a hard target that must be strictly enforced. It is reasonable to adjust this goal flexibly as the economic situation changes. Historically, there are usually significant differences between the goals set at the beginning of the year and the amount of actual lending.