China’s economic growth looks set to finish 2015 once again below the official target, for the second consecutive year.
The growth slowdown is partially attributable to natural economic factors such as weakened global demand and excess capacity in some domestic sectors that have restricted private sector capital spending. Policymakers should also share the blame, as policy settings were kept too tight for too long. Indeed, the authorities for a long time had viewed the policy-induced slowdown as part of the “new normal” and failed to correct policy.
Throughout 2015, the broader policy stance has become increasingly accommodative. On the monetary front, the benchmark lending rate has been lowered by 125 basis points in the past 12 months. Fiscally, the government deficit has remained largely unchanged since 2009, and has only begun to break out in recent months. The latest RMB policy change is also within the authorities’ broader attempts to rescue growth. What does this mean for stocks? Please see the next Insight, Chinese Shares After The Boom-Bust.