As the People’s Bank of China deletes the phrase in the new report, China has laid the foundation for easing

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On September 28, 2018, people walked past the headquarters of the People’s Bank of China (PBOC) in Beijing, China.

Jason Lee | Reuters

BEIJING-The Central Bank of China deleted several words about policy restraint in its quarterly report, and economists said this may indicate that stimulus measures are being implemented.

Since China got rid of the worst impact of the pandemic last year, the People’s Bank of China has kept its monetary policy unchanged. Economic growth has slowed in the past few months due to regulatory blows to the real estate industry, power shortages in factories, and low consumer spending.

The third-quarter monetary policy report issued by the People’s Bank of China late Friday did not mention how the central bank will not conduct a large-scale flood-like stimulus. This is a phrase expressing policy restraint, which has appeared in central government statements since at least the 2019 pandemic.

“In our view, these deletions represent a formal change in the policy stance of the People’s Bank of China and laid the foundation for more decisive monetary and credit easing,” Nomura Chief China Economist Lu Ting said in a report on Sunday . He pointed out that China is experiencing the worst economic slowdown since 2015, excluding the initial outbreak of the Covid-19 pandemic.

Lu pointed out other cuts, including cuts on controlling the money supply-a measure of cash and other easy-to-use currencies. Expanding the money supply usually stimulates economic spending.

Macquarie Chief China Economist Larry Hu said in a report on Sunday that the money supply was first mentioned in a report in November 2020, when the central bank was about to end the stimulus measures during the pandemic.

“This time, remove the phrase[s] Step up the stage of monetary easing,” Hu said.

In keeping the monetary policy flexible and targeted, the People’s Bank of China also deleted the term “normal” monetary policy.

Hu said the People’s Bank of China has become more cautious about the outlook for inflation. Although a sub-heading in the central bank’s latest report still described the pressure of price increases as “controllable,” the author deleted the reference to unfounded long-term inflation or deflation.

Little changes in real estate regulation

Even with these signals, economists expect Beijing to move quietly.

On Monday, the People’s Bank of China kept the benchmark lending rate unchanged for the 19th consecutive month since April 2020.

“I don’t think there will be a major change in monetary policy,” said Bruce Pang, head of macro and strategic research at China Renaissance Capital, in Chinese, according to CNBC.

On the contrary, deleting these fairly “absolute” statements will give policymakers more room for future action, Pang said, noting that policymakers have rarely used these phrases in the past month or so.

We believe that the worst period for the real estate market and the overall economy has not yet arrived, and only then (probably in the spring of 2022) will we see some real changes in real estate restrictions.

Ting Lu

Chief China Economist, Nomura

Despite growing concerns about the economic slowdown, the People’s Bank of China still maintains a strict stance on the real estate market-the real estate market and related industries account for about a quarter of the Chinese economy.

After Beijing’s efforts to reduce the dependence of real estate developers on high debt levels, industry giant China Evergrande has been on the brink of default in the past few months.

The central bank said in a report on Friday that risks in the real estate market are controllable and the overall healthy development of the industry will not change.

“We believe that the worst period for the real estate market and the overall economy has yet to come, and only then (probably in the spring of 2022) will we see some real changes in real estate restrictions,” said Lu of Nomura Securities.

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