The Executive Meeting of the State Council on July 23 signifies that the fundamental of China's macro policy relaxation has been basically established. The State Council has proposed to avoid 'massive stimulus' based on the changes in the situation to adjust and fine-tune the direction to cope with the uncertainty of the external environment and keep the economic operation within a reasonable range. The Executive Meeting also proposed that fiscal and financial policies should work together to serve the real economy and the macroeconomic situation more effectively. A proactive fiscal policy should be more active, and a prudent monetary policy should be moderate in its execution.
The relaxation of the macro policy has in fact fulfilled the proposal and policy prejudgment made by Anbound at the end of 2017 that China needs RMB 30 trillion to RMB 50 trillion "major release" in the future. Many officials believe that this is not feasible because the "major release" was thought to be against the policy shift of de-leveraging in 2018. Observing the changes in the current situation it appears the policy direction is shifting to what Anbound had proposed. Seemingly, Anbound's "assertive" proposal is made after rational analysis was conducted on China's economic and social system.
It should be noted that the RMB 30 to RMB 50 trillion amount of "major release" in Anbound's forecast is not an arbitrary figure, but produced in the process of tracking research with Anbound's unique methodology that considers the following conditions:
First, China's policy structure will not change, and there is limited progress in the reforms, so linear derivation results can be used. Second, China's current economic volume is sharply larger than RMB 4 trillion; now it has exceeded RMB 80 trillion, therefore RMB 4 trillion for "major release" will not be sufficient. Third, the "major release" will lead to more serious financial consequences such as increased debt, but delaying the time for the problem to deteriorate has become the only option, else the situation could require even more drastic approach. Fourth, we predict that China will face serious difficulties in the geopolitics, especially with North Korea, Vietnam, Russia, and of course the United States. A series of problems have prevented China from gaining access to new external market space, and its capacity cannot be released, while its debt is accumulating. Fifth, we predict that innovations such as "Internet +" will not stimulate China's macro economy, and relevant capital investment will be ineffective. Sixth, the market shrinkage of China's real economy will cause serious pressures in the macro-economy.
It is based on these forecasts and judgments that we predict the macro policy will be relaxed.
Now, it can be said that the "major release" is partially concealed, and the relaxation has a certain scale, but it is worth noting that the direction and positioning of the release policy still remains unclear. If this continues, even if it is released, it may not be able to achieve the desired results, or the worst-case scenario might happen, in which the release policy is accused as a mistake. Anbound's research team also analyzed from the exchanges with many government and corporate clients that everyone has gradually recognized the release policy, but they are not sure about the flow of funds after the release.
Clear positioning, guidance and restriction of the flow direction of the release policy is a realistic problem after the policy is relaxed. Policy wise, Anbound's research team believes that if China wants to conduct the release, it must at least have a certain grasp of its direction and should choose those long-term benefits that have little impact on the future financial, as well as conform to the direction of social and economic development. This can include urban governance, commercial rejuvenation, afforestation, ecology and environmental protection, pension and health, medical and pharmaceutics, rural revitalization, as well as education and technology. The release policy should focus on the above-mentioned areas to produce positive effects, which can be long-term benefits and the improvement of business environment, as well as strengthening the market and alleviate social development.
It is worth noting that now the market has introduced the release policy, it would immediately relate it to infrastructure and real estate and hope these areas would be rapidly stimulated and increase the investment, GDP growth and local fiscal revenue. Anbound's scholars pointed out that China should be extremely cautious in stimulating infrastructural construction through the release policy. In fact, almost all major economic and financial crises in history are related to the peak period of infrastructural construction; this is not an accidental phenomenon, but it is dictated by the law of development (see Urbanization, Chan Kung, 2015). If we ignore this law, there will be heavy losses, and the economic crisis will reproduce in a more dramatic form.
Final Analysis Conclusion:
The trend of the Chinese macro-policy shifting to the "release" policy has been established. This is policy adjustment should not be taken for granted; rather it is determined by the current situation. In the next step, the flow of funds after the release policy will be of great importance. The fund can no longer flow to real estate and infrastructural construction, but the areas that will have lesser impact on the future finance and are in line with social and economic development trends to improve the market development environment.
