During his visit to financial institutions on January 4, Premier Li Keqiang especially emphasized the need to strengthen the countercyclical adjustment of macro policies, take further measures to cut taxes and charges, make good use of comprehensive and targeted reserve requirement ratio (RRR) reduction tools, and support the financing of private enterprises and micro businesses. On the same day, the central bank announced to cut the RRR of financial institutions by 1 percentage point. In addition, the central bank's targeted RRR cuts for small and micro enterprises have been expanded recently. From the speech of Premier Li Keqiang and the actions of the central bank, it seems like the overall easing will be the keynote of macro policies in 2019. As pointed out by the Central Economic Work Conference that held at the end of last year, the macroeconomic policies should strengthen the counter-cyclical adjustment, continue to implement a proactive fiscal policy and prudent monetary policy, timely anticipatory adjustment and fine-tuning, and stabilize the aggregate demand. Now, the central bank's actions are concrete measures to implement the prudent monetary policy that pointed out by the central economic work conference and play a greater role in supporting the economy while maintaining steady growth.

Now the central bank's RRR cut indicates that the marginal easing of monetary policy is basically established. In addition, the strategy of prudent monetary policy was changed from "neutral" to "moderately tight", and the countercyclical adjustment effect of fiscal policy and monetary policy was emphasized. This is related to the increasingly grim economic situation. The Central Economic Work Conference has pointed out that the economy is facing downward pressure. At a time when PMI, corporate earnings and other indicators have repeatedly shown that China's economic growth is slowing and the downturn in capital markets reflects a lack of investor confidence, the tone of the announcement of easing will be needed not just for the real economy but also to maintain market confidence. Anbound has previously stressed the need for more countercyclical adjustments in monetary policy, fiscal policy, and macro-prudential policy especially in the face of economic downturn and a lack of confidence in capital markets. Besides, there were some scholars pointed out China's most pressing problem is the continuing slowdown in economic growth. China's past experience has proved that without a certain level of economic growth, all problems will deteriorate, the long-term problems such as structural adjustment and economic restructuring are out of the question. Securities analysts pointed out that the full implementation of the RRR reduction has little effect on solving the current economic problem, but in the current situation, it will play more to curb the decline of economic growth rate and supplement the base money supply gap. The RRR cut is expected to release about RMB 1.5 trillion of funds and net long-term capital of RMB 800 billion into the market. This is also the steepest of the central bank's five RRR cuts since 2018.

Fiscal and monetary policies are mutually reinforcing and provide guarantees for economic growth. From the perspective of macroeconomic policy, monetary policy should be prudent and fiscal policy should be proactive, in this sense, if monetary policy starts to be relaxed, fiscal policy should be more proactive. Both the Central Working Conference and the recent speeches of Premier Li Keqiang mentioned that "the proactive fiscal policy should be strengthened to improve efficiency, implement larger tax cuts and fees deduction, and substantially increase the size of special bonds issued by local governments". Since November 2018, the National Development and Reform Commission has accelerated the approval of infrastructure construction. Coupled with the centralized issuance of local special bonds in 2018, infrastructure construction has been strengthened, which can be seen as an important signal of expansionary fiscal policy, and also means that the government budget in 2019 is expected to appropriately increase the tolerance of fiscal deficit. Some analysts believe that compared with 2018, the fiscal deficit ratio will be raised from 2.6% to 3.0% in 2019; the tax cut is expected to be raised to RMB 1.5 trillion in 2019 from RMB 1.3 trillion in 2018; and there is room for cuts in value-added tax, corporate income tax, individual income tax, and social security contributions. On the one hand, it can reduce costs, and stimulate the vitality of micro-enterprises. More importantly, it can directly stimulate the private investment and the consumption in the market. In terms of expenditure increase, analysts from securities firms believe that the new special bonds in 2019 will reach about RMB 2 trillion, an increase of RMB 0.65 trillion in 2018. This means that the rapid decline in infrastructure investment growth in 2018 will reverse in 2019, and is expected to reach 10% or even higher growth rate.

However, in the implementation of macroeconomic policies, it is still difficult to improve the policy transmission mechanism, the role of financial institutions in resource allocation, and especially the financing environment for private enterprises. The Central Economic Work Conference stressed the need to "improve the monetary policy transmission mechanism", but for now the overall credit crunch still exerts great pressure on the real economy, especially some private, small and medium-sized enterprises. The way to channel funds to the real economy, a smooth monetary policy transmission mechanism is one of the keys focuses in this year. Premier Li Keqiang special visit to the department of inclusive finance during his visit to financial institutions shows that the central government attaches great importance to financial resources to support private enterprises, small, medium and micro enterprises. At the present stage, the restriction of monetary transmission to credit is multifaceted, such as the weak ability of bank credit recognition, the blocking of the main channels for increasing leverage for a long time, and the lack of high-risk preference subjects after the weakening of off-balance sheet financing, etc., all of which make credit risk magnified especially in the economic downturn.

Many are concerned about whether the property policy will be loosened. Whereas, the goal of this round of easing policy is to alleviate the problem of difficult and expensive financing for private enterprises, small and micro enterprises, and will not involve the real estate policy shift. From the national point of view, the principle of "house is not for speculation" and the limits of purchase and credit have not changed. However, the effect of macro policy easing is difficult to achieve precise drip irrigation, when money flows into the market, the real estate market will still be affected indirectly. In fact, given that the market is active, maintain a certain level of real estate market demand and drive the recovery of real estate transactions can alleviate the risk of leverage to a certain extent, which is also a significance for maintaining a certain rate of economic growth. Anbound believes that the return of the loose tone of macro policies is not a return to the old way of large-scale stimulus, but to support the economy with loose policies, promote reform, restore market confidence, and bring new momentum and vitality to the economy.

Final analysis conclusion:

In a nutshell, the current expansionary policy has been formed, the future macro and micro market environment, financial environment may change accordingly. Despite the lack of confidence in the market as a whole, it is important to prepare for the economic downturn proactively, grasp policy trends and take advantage of possible opportunities. When markets warm up, market institutions and governments that are involved early will often get more opportunities.