China to Focus on Stabilizing Economic Growth This Year, UBS Says

There's been an interpretation which is that 5% or around 5% is the floor that they were hopefully surprised at the upside, but is it also an indication that the focus is more on the restoration of quality growth? Yes, I think the government is a little bit more cautious this year given the uncertainties, both with the global environment and also when they set the target in the Economic Work Conference last December, of course the Chinese economy was in a dire position with a lot of uncertainty related to COVID and reopening. I think this about baseline scenario, I think the government is striving for more and give themselves some space to also not stimulate too much and see how the situation goes. I think recent developments suggest that reopening is proceeding quite in line with the expectation, if anything, probably even a little bit better. When you take a look at the changes that we're expecting when it comes to China's institutions as well as the changes when it comes to key party and economic leadership personnel, are you concerned about the risks there given that we are expecting that handover from very experienced, very well respected economic leaders to perhaps people who are not so experienced in that area? Well, I think China's policy tends to have a continuity, so I think the work report and the Economic Work Conference last year by the Politburo was already set together with the incoming leaders and also it's very clear that this year's focus for the government is going to be the growth agenda to really stabilizing growth, so I don't think there's going to be much surprise here. And also the incoming leaders have had a lot of experience managing local economies and tend to be relative experience with big coastal provinces and the expected vice premier in charge of financial affairs and so on, economic affairs, have also had a lot of experience managing the NDRC, the most powerful macroeconomic agency. So the NDRC report this year is actually quite extensive, outlining this year's policy agenda. So there's not a lot of risk in terms of underperforming.

I think if anything, given the focus on economic growth agenda, there's potentially actually more upside surprise on the policy side. There's a lot of room for them to do more. And yet we haven't seen anything large or just broad, wide economic policy support. So what other sort of targeted support could we expect, especially in the monetary side of things and even in the fiscal side of things when it comes to boosting consumption? Right. I think this year's overall policy has a modest supportive tone and also envelope. So that's in line with the expectation. I think there's potentially more space in the quasi-fiscal space, for example, more policy bank lending and that combines credit or monetary policy with the fiscal policy.

Of course, the budget deficit is in large somewhat and the special local government bonds also raised. There are also unspent money from last year on the local government side, probably close to one to two trillion RMB that can be used this year. On the monetary side, I think they are still prudent in the sense they are worried about too much of a debt increase. They worry about local government debt and also the need to continue to diffuse some of the debt risk related to developers as well. So as I mentioned, it's a continuity type of policy. On the consumption side, we could see some local governments increasing their consumption coupons and there's encouragement from Minister of Finance to do more on so-called green appliances and smart appliances as well as electric vehicles, so probably in some of those areas.

Bloomberg