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121205 China - New Leaders' Politburo Meeting Sets Policy Tone

121205 China - New Leaders' Politburo Meeting Sets Policy Tone

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Published by: Luke Campbell-Smith on Dec 05, 2012
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Economics05 December 2012
Sun Junwei | +861059998234 | JUNWEISUN@HSBC.COM.CNQu Hongbin | +85228222025 | HONGBINQU@HSBC.COM.HKView HSBC Global Research at:http: //www.research.hsbc.comIssuer of report: The Hongkong and Shanghai BankingCorporation Limited
China
New leaders'Politburo meeting sets policy tone
In the Politburo meeting on 4 December, China's new leaders made their first official assessment of the economy andset the policy tone for the coming year, ahead of the upcoming Central Economic Work Conference. They see theeconomy stabilizing and more favourable factors in the coming year. They called for policy continuity and stability,and strengthening of reform efforts in key policy areas. This in our view implies that accommodative policy as well asproperty tightening measures will remain in place in the coming quarters. In addition, fiscal and urbanization reformsare set to be stepped up.
Facts:China's new leaders held the Politburo meeting on 4th December and issued an statement last night, including their first officialassessment of the economy and the direction of future policy.Key takeaways are as follows:- They see the economy as stabilizing and increasing positive signals, hence remain confident about achieving 2012's full-yeareconomic and social development goals.- Despite further difficulties and challenges ahead, which cannot be underestimated, China is seeing many other favourableconditions and positive factors start to emerge in time for the next year.- China will maintain policy continuity and stability, to strengthen the effectiveness and coordination of policies.- Their policy focus will be on boosting domestic demand, in particular to create growth hot spots for consumption. At thesame time, it will stabilize investment growth, optimize investment structure and crack down on the expansion of energy andresource intensive industries and sectors, especially those with over capacity.- It will steadily and pro-actively promote urbanization and the orderly transfer rural migrant workers into urban citizens. Itwill also enhance the social security net.- It will maintain price stability, keep existing property control measures and boost the construction of public housing.- Key reforms will be deepened: VAT reform, resources pricing, medicare, SOEs and rural.ImplicationsThe new leadership's first assessment of the economy set the policy tone for the coming year, although detailed growth targetsand policy agenda for next year will not be unveiled until the upcoming annual Central Economic Work Conference (likely tobe held in the coming weeks if not days). We believe the y-o-y GDP growth target for 2013 is likely to be 7.5%, the same aslast year. This reflects a desire to maintain policy continuity after the leadership transition and is in line with the medium-termtarget of quadrupling GDP and per capita GDP between 2010 and 2020 (see China: Key takeaways of President Hu's speech onparty congress, 9 November 2012).As Beijing sees growth bottoming out and the growing emergence of other positive factors, so the need for additional policyeasing has been reduced. Rather, the tone of "policy continuity and stability" implies both monetary and fiscal policies arelikely to stay accommodative to help China strengthen domestic demand and tackle external challenges. With inflation undercontrol and the risk of price hikes well managed, a modest below-potential growth recovery leaves room for the PBoC tokeep an easing bias in the coming quarters, although quantitative tools are likely to be preferred. More important will be fiscal
 
HSBC Global ResearchEconomics05 December 2012
2policy and reforms (such as the current extension of VAT reforms) to support ongoing infrastructure investment, boost socialsecurity and reduce tax borders for SMEs.Not only reforms in key areas will be accelerated (See China Inside Out: New leaders' agenda: Time for change, published20 November). The urbanization process will likely be speed up, given that the Premier-in-waiting has been talking abouturbanization as a powerful growth driver for the medium and long term (See From the horse's mouth: What will China'sgrowth drivers be in the medium term?, published 15 October 2012).Bottom line: New leaders see growth bottoming out and will likely maintain an accommodative policy stance for the comingyear. Stay tuned and watch out for a detailed policy agenda from the upcoming Central Economic Work Conference.SUN Junwei - China EconomistQU Hongbin -Co-head of Asian Economics Research
 
HSBC Global ResearchEconomics05 December 2012
3
Disclosure appendix
Analyst certification
The following analyst(s), who is(are) primarily responsible for this document, certifies(y) that the opinion(s), views or forecastsexpressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly orindirectly related to the specific recommendation(s) or views contained in this research report: Jun Wei Sun and Hongbin QuThis document has been prepared and is being distributed by the Research Department of HSBC and is intended solely for theclients of HSBC and is not for publication to other persons, whether through the press or by other means.This document does not provide individually tailored investment advice and should not be construed as an offer or the solicitationof an offer to buy or sell any securities or to participate in any trading strategy. The information contained within this documentis believed to be reliable but we do not guarantee its completeness or accuracy. Any opinions expressed herein are subject tochange without notice. HSBC may hold a position in, buy or sell on a principal basis or act as a market maker in any financialinstrument discussed herein.Analyst(s) are paid in part by reference to the profitability of HSBC which includes investment banking revenues.HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Researchbusiness. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate andhave a management reporting line independent of HSBC's Investment Banking business. Chinese Wall procedures are in placebetween the Investment Banking and Research businesses to ensure that any confidential and/or price sensitive information ishandled in an appropriate manner.
Additional disclosures
1 This report is dated as at 05 December 2012.2 All market data included in this report are dated as at close 05 December 2012, unless otherwise indicated in the report.3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with itsResearch business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operateand have a management reporting line independent of HSBC's Investment Banking business. Information Barrier proceduresare in place between the Investment Banking and Research businesses to ensure that any confidential and/or price sensitiveinformation is handled in an appropriate manner. 

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