The Communist Party’s top policymaking body, the Politburo, held its quarterly meeting on the economy on 30 July. The official readout shows the leadership growing more concerned about slowing growth and shifting towards policy loosening. The shift will be gradual, however, as growth will remain in a comfortable range for the remainder of this year. Policymakers appear more concerned about 2022, when the party will choose a new slate of top leaders at its five-yearly party congress, probably in November. Incumbent leaders typically seek to ensure high growth ahead of these party congresses to strengthen their political stature and ability to influence personnel appointments.
Analyzing the differences between successive Politburo readouts is the best way to detect policy changes. Compared to the April statement, the most important change in July is the removal of the phrase “turn but no sudden turn.” That phrase first appeared in December, signaling a gradual shift away from pandemic-era stimulus towards policy normalization; its removal signals a pivot back towards loosening. Also gone is the previous reference to “the window of low growth pressure,” signaling that policymakers believe this window is now closing. Both monetary and fiscal policy are likely to loosen in the coming months, led by an increase in local-government bond issuance, which will set the stage for a revival of infrastructure investment next year.
The Politburo also signaled that the regulatory offensive against the technology sector is likely to wind down. The Politburo first mentioned anti- monopoly enforcement in its December meeting, then added a reference in April to strengthening regulation of platform companies. Both references are gone from the July statement. Policymakers apparently want to reassure financial markets and business leaders that the worst of the recent crackdowns is over. On the other hand, the July statement adds a new reference to improving regulation of overseas stock listings, following the State Council’s promise last month to address this issue after Didi Global’s IPO. However, a statement by the China Securities Regulatory Commission on 1 August strengthens our view that regulators intend to assert more control over foreign listings, not block them entirely.
Despite the overall pivot towards policy loosening, the Politburo also indicated that policy towards several specific sectors will remain tight. The readout maintains the phrase “housing is for living in, not for speculation,” indicating that efforts to contain housing prices will continue, especially in the largest cities. On carbon emissions, the Politburo acknowledged the need to “correct campaign-style’cut carbon’ efforts,” while reiterating the need for progress on emissions reductions. “Campaign-style efforts” refers to some local governments that sought quick reductions in emissions through unsustainably harsh restrictions, some of which may have contributed to electricity shortages earlier this summer and in late 2020. The Politburo called instead for “wholistic planning” to lower emissions, a phrase that implies more deliberative, long-term-oriented policymaking. We believe emissions cutting remains a significant political priority, but as discussed, policymakers have yet to announce policies sufficient to the scale of the challenge.