Since PBoC took a whole-sale easing approach by putting all monetary easing steps into one big policy package last week, we expect a significant impact on Chinese economy to the extent of 0.2-0.3% of GDP in next 1 year. It will likely have significant easing effects on banking liquidity, credit growth and capital market. This policy pivot could be seen as China’s moment of “whatever it takes” moment, as Chinese leaders have taken aim at deflation and pledged to push up the economic growth to the annual target of 5%. The monetary push is supported by fiscal measures too. At the highly unusual Politburo meeting on 27th Sep, Chinese leaders confirmed a dramatic policy pivot from piecemeal support to “shock and awe” stimulus to achieve annual growth of 5%. On the fiscal policy side, the Politburo vowed to issue and utilize long-term government bonds to “ensure necessary fiscal expenditures”, suggesting that a sweeping package of fiscal stimulus is in the pipeline. We expect the next three months to be policy-intensive leading up to the Central Economic Work Conference in December. This stimulus package might be a game changer in shifting China from an investment-focused economy to a consumption-driven one. We do not under estimate such a coordinated policy response from Chinese authorities & expect to see Chinese dragon returning to the world economy stage soon with a big bang.
