21/7/2018-3

Moderate adjustment of macroeconomic policies, steady economic growth

The Sino-US trade war has escalated to bring pressure to China’s economic growth in the second half of the year. In order to stabilize economic growth, the mainland’s macroeconomic policies have shifted moderately, and the tightening has been weakened.

No “big water flooding"

Premier Li Keqiang presided over the State Council executive meeting on Monday (23rd), deploying a better role in fiscal and financial policies, requiring fiscal and financial policies to work together to serve the real economy and the overall macroeconomic situation, and actively fiscal policy to be more active and stable. The policy should be moderate and appropriate.

Although the policy was moderately adjusted, the meeting stressed that it insisted on not engaging in the “great flooding" style of strong stimulus.

Haitong Securities interprets the above remarks and believes that there is no water flooding but no flooding; no old-fashioned real estate bubble; infrastructure investment bottoming, but no big deal; tax cuts encourage R&D innovation and stimulate high-end manufacturing investment. This means that there will be no big investment in the investment cycle.

Add capital investment or increase leverage

The Sino-US trade war will be officially launched this month. The probability of export growth will slow down in the second half of the year. Under the circumstance that consumer spending is difficult to support, the fiscal and financial needs are moderately relaxed, and the government has introduced policies to increase investment in fixed assets, which will help stabilize Economic growth in the second half of the year to prevent the economic growth rate from falling too fast.

While focusing on tax cuts and reductions, the government will increase its capital investment, and the central government will speed up the relevant expenditures. The marginal relaxation of monetary policy means that the pace of deleveraging will slow down and may even return to the road of leverage.

The development of the economy by borrowing from infrastructure and local financing platforms is actually adding leverage.

In the first half of the year, the infrastructure of the narrow sense only increased by 7.3%. With the moderate adjustment of macroeconomic policies, the growth rate of infrastructure investment in the second half of the year is expected to improve under the financial reinforcement.