Setting the Growth Agenda

In 2018, based on the appreciation of the RMB, the Chinese Finance Department has made a new adjustment. The new financial policy has raised the total loan amount of the small and medium-sized enterprises(SMEs).

Setting economic policy has always been a tightrope walk for policymakers in China and 2018 seems to be no different. That said, the key objectives for most of this year are rebalancing the country's economic structure and fending off potential credit risksand this will probably continue for the most of next year.

A broad look at 2018 reveals that fiscal and monetary policies would be the crucial tools for Chinese authorities to achieve high-quality economic development, while checking debt growth at the local government level and in the financial sector will be the top priorities.

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On a broader basis, the overall development blueprint would hinge largely on the fiscal policy remaining "proactive" and the monetary policy remaining "prudent and neutral" next year with an eye on "better serving the real economy". According to the deliberations at the recent annual Central Economic Work Conference, these would also be the yardsticks for evaluating the policy effects.

Apart from prudent economic policies, curbing money supply would also be another key objective for policymakers. China is likely to set the slowest single-digit M2 growth target in history next year, in an effort to control the "master valve" of total money supply, primarily to crimp the nerve center of rising debt and the trigger of asset bubbles. That, in a nutshell, was also the key message handed out by economists after this year's annual Central Economic Work Conference.

On the one hand, overall broad money supply remains tighter than ever before, while on the other hand, liquidity is aplenty for the sectors in need.
Starting January 2018, the Chinese central bank will "conditionally" cut the cash amount that needs to be set aside as reserves, or the required reserve ratio, by financial institutions that have issued loans to support small- and micro-sized enterprises, startups and agriculture. The reduction would, however, depend on the total amount of loans extended, with an overall objective of releasing some 5 billion yuan ($760 million) into the financial markets.

A key objective of next year’s monetary policy would be to maintain “reasonable growth” of money supply, credit and total social financing – a broad measure of credit and liquidity in the economy including off-balance-sheet financing, required by the conference.

To prevent financial risks, however, "deleveraging" has become one of the government's top priorities in advancing supply-side structural reforms. The fifth National Financial Work Conference in July clarified that the financial sector should support the development of real economy and strengthen regulatory oversight aimed at preventing systemic financial risks.

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