New Policy Signals from the Politburo

The economic assessment has taken a slightly less bullish tone of late but so far there are no signs of a dramatic easing of monetary policy similar to that of 2014-2015.

There have been widely differing views on the likely direction of domestic monetary policy，however，not to mention heated discussions on how to deal with the simmering US-China trade dispute. The Political Bureau of the Chinese Communist Party's Central Committee held its 19th session on July 31 against this background. The statement issued at the end of the conference was brief but it offered policy clues for the market. Here are some observations on the key policy topics of that meeting.

The overall assessment of the economy has shifted to "change amid stability" from "generally stable" and "stable and improving" ¡ª two descriptions that had been in use over the last two years. This reflects a slight shift in the economic environment. China's real economic growth rate dropped from 6.8% year on year in the first quarter to 6.7% in the second quarter，for example. That was only a decline of 0.1 percentage point despite the significant downward pressure on the economy. The good news is that even if the growth rate continues to decline in the third and fourth quarters，China will still be able to attain a reasonably good 6.5% growth rate for the year.

The return of the phrase "controlling the supply of credit" indicates that in the short term，there will be no flooding of the market with credit as in 2014-2015. This is a clear response by the Politburo to the market talk about whether there will be a return to the "great easing policy" of 2014. It points to only limited adjustments to policy. As for issues that are structural rather than cyclical，the central government has placed special emphasis on using targeted measures and employing structural policies to solve structural problems. Other policies will be used to support structural measures. This is fundamentally different from 2014.

Fiscal policy，which was not mentioned specifically after the April Politburo meeting，has become the focus of macroeconomic policy and may be the main means of achieving structural fine-tuning. Fiscal policy has changed in recent years. The period between 2014 and the first half of 2016 witnessed relatively loose fiscal policy，with the central government emphasizing the need for an "intensive" and "more active" response to prevailing economic conditions. Fiscal policy was tightened somewhat between the second half of 2016 and the first half of 2018，with the central government's attention focused on "optimizing the structure of expenditures"，as well as holding down general expenditures and strengthening local government debt management. At this latest Politburo meeting，there was an obvious shift with the central government emphasizing once again that financial policies should "play a greater role" and noting that there was a need for increased domestic demand. Similar expressions in 2014-2015