China signals economic stimulus to counter worsening slowdown

China has given its strongest signal yet that it will move with greater urgency to counter a deepening slowdown, as the government promised to introduce new measures to support the economy and study policies to stabilise the reeling property market.Having spent months insisting the focus was on fully implementing existing measures, China’s cabinet — the State Council — now says it will “put in place a package of practical and effective additional policies” to safeguard this year’s economic goals.

The “emerging issues” in the economy require the government to “step up counter-cyclical adjustments,” it said in a statement Monday.The abrupt shift in language indicates an imminent new round of stimulus as Beijing becomes increasingly concerned over the cooling momentum in the world’s second-largest economy.Growth has likely weakened further below the bottom end of the government’s annual target in the third quarter after reaching 4.3% in the previous three months, with consumption flatlining and investment falling into a deeper slump.“

This signals that there will likely be more policy support rollout in the weeks ahead to support the short and long-term growth targets,” said Lynn Song, chief economist for Greater China at ING Bank NV.While China’s leadership appears ready to tailor policies in any way necessary to meet this year’s growth target, the government has so far hinted at several measures that suggest it’s not contemplating a stimulus package on the same scale as two years ago, when it moved aggressively to turn around market sentiment.Local authorities will be allowed to tap unused bond quota left from previous years, with the central bank’s relending allowance increased to encourage loans to sectors including technology, agriculture and small businesses, according to the statement issued after a Monday meeting of the State Council chaired by Premier Li Qiang.Policymakers will also study fresh measures to stabilise the property market, promote employment and boost household income, it said.“

The underlying growth momentum does not appear strong enough on its own to deliver the annual target, implying that additional policy support will be needed in the fourth quarter,” said Jacqueline Rong, chief China economist at BNP Paribas SA. “The purpose of such measures would be to bridge the gap between underlying growth and the 4.5% goal. That suggests the stimulus does not need to be large, since the gap itself is likely modest.”

Investors reacted to Beijing’s latest messaging by bidding up property stocks, with a Bloomberg index of developers climbing more than 4% as of the mid-day break, on track for its biggest gain in more than a month.The yuan strengthened 0.1% against the dollar both onshore and offshore, while the yield on the government’s 10-year government bond was little changed.The magnitude of any policies to aid the housing market as well as jobs and wages will be key to watch, given the potential boost to confidence and consumption, according to ING’s Song.

“If we see substantive measures to firm up the stabilisation signs that we’ve seen recently in the property market, it would be the most impactful for the economy,” he added.Also Read: Rupee unlikely to breach 97 despite high crude prices and strong dollar: Naveen Mathur