Housing and auto stimulus policies will be extended

by ka888g68u on 2009-12-08 13:14:36

Housing and Auto Stimulus Policies Will Be Continued - China Finance Network, December 8, 2009

Source: NetEase Finance

The three-day Central Economic Work Conference concluded yesterday. From the information released at the conference, the policy tone for next year did not deviate from market expectations. The fiscal and monetary policies of "double easing" will continue. The question of whether the housing and auto market preferential policies that the public is particularly concerned about will be continued has basically received an affirmative answer.

"Double Easing" Policy: Loose on the Outside, Tight on the Inside

Yesterday's meeting set the same tone for next year's macroeconomic policies as the previous Central Political Bureau meeting. However, the description of the "double easing" policy has already given outsiders a whiff of adjustments.

On fiscal policy, the Central Economic Work Conference emphasized highlighting the focus of fiscal policy implementation and increasing support and guarantee for people's livelihood areas and social undertakings.

Even more noteworthy is that investment policy has begun to show signs of adjustment. The meeting explicitly proposed that "investment should maintain moderate growth, focusing on completing ongoing projects, strictly controlling new projects."

This is quite different from the previous September Political Bureau meeting's "continue to play a key role in investment in pulling the economy and adjusting the structure."

On monetary policy, the meeting proposed that monetary policy should maintain continuity and stability, enhancing relevance and flexibility. It should closely track changes in domestic and international economic conditions. The meeting also put forward explicit requirements for credit growth speed, requiring to "grasp the growth speed of money and credit."

Industry insiders believe that compared with the "double easing" policy of 2009, the "double easing" policy of 2010 leans more towards being loose on the outside but tight on the inside. For example, in terms of monetary policy, new loans in the first half of 2009 reached 737 billion yuan, while in the second half, they only increased by 155 billion yuan.

Yang Zhuyong, a researcher at the Institute of Finance and Trade Economics of the Chinese Academy of Social Sciences (CASS), told CBN that although the expression regarding the direction of macroeconomic policy remains "double easing," economic policies are greatly influenced by short-term factors. The connotation of the term "moderately loose" is very rich, leaving much room for adjustment.

Yang Zhuyong believes that judging from the current situation, there is significant pressure on prices. Under the joint influence of rising commodity prices, resource price reform, and other factors, it cannot be ruled out that policies may change direction in the middle of 2010.

However, some experts have offered different interpretations. Li Yang, former member of the Monetary Policy Committee of the People's Bank of China and vice president of CASS, stated in the "Prediction of the Economic Situation in China in 2010" released by CASS yesterday that, looking at the statutory reserve requirement ratio, benchmark interest rates, supply of reserve currency, and liquidity injected into the market, compared to 2007 and 2008, China's monetary policy operations in 2009 were actually neutral with a slight bias towards tightening.

Li Yang believes that the reason for the expansionary effect of monetary supply lies in the diminishing effectiveness of traditional monetary policy control measures. Therefore, the growth rate of money supply and the scale of new credit in 2010 should remain stable, and macro-control should instead be implemented through micro-level and financial regulatory means.

"Strengthening the regulation of balance sheets of all types of financial and non-financial institutions and strengthening macro-prudential regulation will be the main direction of monetary policy operations in 2010," Li Yang said.

Continuation of Property Preferential Policies

As expected by the market and media before the meeting, adjusting the structure became a prominent theme of this conference. The meeting detailed a specific framework for adjusting the structure.

Consumption became the core content of structural adjustment. The meeting proposed expanding residents' consumer demand and enhancing the role of consumption in driving economic growth.

National income distribution was mentioned first. The meeting proposed increasing the adjustment of national income distribution and enhancing the consumption capacity of residents, especially low-income groups.

Yang Yiyong, director of the Institute of Social Development of the National Development and Reform Commission, told CBN yesterday that "raising the high, expanding the middle, and lifting the low" will become the main handle for adjusting national income distribution next year. The focus will be on improving pensions and social security levels, etc., while "expanding the middle" is most importantly establishing a wage negotiation mechanism, where what the government can provide is a negotiation framework and mechanism.

In addition, a series of pro-consumption policies in 2009 will continue to be extended. The meeting proposed maintaining policy continuity, further doing well in rural electrification, car, and motorcycle programs, continuing the old-for-new policies for home appliances and cars, increasing subsidies for agricultural machinery purchases, increasing the supply of ordinary commercial housing, and supporting residents' self-use and improvement-oriented housing needs.

A real estate industry insider believed that "supporting residents' self-use and improvement-oriented housing needs" means that the debate over whether the housing purchase preferential policies would exit has essentially ended, and tax and fiscal preferential policies will continue.

In addition, the meeting proposed actively promoting urbanization, currently focusing on strengthening the development of small and medium-sized cities and towns. Solving the gradual employment and settlement of qualified agricultural transfer populations in urban areas will be an important task in advancing urbanization, relaxing household registration restrictions in small and medium-sized cities and towns.

This is the first time at the central level that relaxing household registration in small and medium-sized cities and towns has been proposed. Many places such as Shijiazhuang have previously introduced policies like settling down through property purchase.