HSBC has an intersting note out offering an interpretaion of the results of the first meeting of China’s new politbureau. According ot HSBC the key takeaways are:
– They see the economy as stabilizing and increasing positive signals, hence remain confident about achieving 2012’s full-yeareconomic and social development goals.
– Despite further difficulties and challenges ahead, which cannot be underestimated, China is seeing many other favourable conditions and positive factors start to emerge in time for the next year.
– China will maintain policy continuity and stability, to strengthen the effectiveness and coordination of policies.
– Their policy focus will be on boosting domestic demand, in particular to create growth hot spots for consumption. At the same time, it will stabilize investment growth, optimize investment structure and crack down on the expansion of energy andresource intensive industries and sectors, especially those with over capacity.
– It will steadily and pro-actively promote urbanization and the orderly transfer rural migrant workers into urban citizens. It will also enhance the social security net.
– It will maintain price stability, keep existing property control measures and boost the construction of public housing.- Key reforms will be deepened: VAT reform, resources pricing, medicare, SOEs and rural.
That sounds rather like being all things to all people. Somewhat reassuring, I guess, although it very much remains to be seen whether investment can be stabilised and consumption accelerated simultaneously. If the former relies on financial repression in the form of low interest rates and the latter the opposite for increased disposable income from higher returns on savings then it isn’t possible. But there are things China could do to boost its chances. Growing social security is one and I note that that is a focus. Tax reform too could help.
What is in this for Australia? Not enough detail to say. Steel is one of the sectors that will be targeted for consolidation. That would not be favourable to the ore price in the short or medium term. A more consolidated and efficient steel sector will have greater pricing power and less need for iron ore stockpiles although greater profitability would help stabilise fluctuations in demand. But it’s really still just wait and see.
121205 China – New Leaders’ Politburo Meeting Sets Policy Tone
