China’s home prices will fall by as much as 30 percent in the next year, driven by the government’s housing curbs, according to Barclays Capital Research. But now, their emerging markets research group says that monetary easing may have started, so here we present their latest report on China.
– The PBoC’s latest policy report confirmed that policy easing has started, although it may take months before the central bank adopts an overall loosening bias. This shift will probably take place in Q1 12, in our view.
– The timing of the policy change depends on two factors: the future trajectory of the economy and policymakers’ ability to resist political pressure.
– The central bank now aims to achieve stable growth in the money supply, bank credit and total social financing. The recent uptick in bank credit, however, was a response to shrinking off-balance-sheet activities.
– We expect the authorities to focus on controlling systemic risks, especially those related to small enterprises, private lending, shadow banking and local government finance.
– With the increasing importance of cross-border capital flows and off-balance sheet transactions, adjustments of certain policy instruments can be viewed as having been made to stabilise liquidity conditions, not necessarily to affect pace of economic growth.
– Market interest rates could decline, although policy rates are likely to be on hold for now. Currency appreciation may also slow in the coming months as both capital inflows and exports slow.
– There is a risk of a premature and aggressive shift in monetary policy, which would be positive for asset prices in the near term, but negative for growth sustainability in the long run.
Full report can be downloaded below.