China resists stronger stimulus push

China’s top leaders used their July 30 Politburo meeting to promise more support for the economy without unveiling the broad stimulus some investors had expected. The meeting pledged faster use of already-budgeted fiscal funds and “incremental policies” in the second half, according to state media and Reuters, but it did not announce major new steps for the property market. Goldman Sachs analysts said this week that China should allow a stronger yuan and add fiscal support to lift near-term growth and rebalance the economy toward domestic demand. At the same time, the Financial Post, citing the Financial Times, reported that Beijing has launched a global hunt for unpaid taxes stretching back decades as authorities try to plug a fiscal gap. (wifc.com) The combination points to a familiar policy mix: limited support to keep growth on track, caution on property, and a push to shore up government revenue. Reuters reported after the Politburo meeting that Beijing was focusing on faster spending of funds already approved rather than preparing a large new stimulus package. ### Why didn’t the Politburo deliver a bigger package? (msn.com) The July 30 Politburo statement called for more active fiscal and monetary policies, but the measures described publicly were incremental rather than sweeping. Reuters reported that officials said they would accelerate issuance and use of fiscal funds and support growth in the second half after a weaker-than-expected slowdown. (wifc.com) Bloomberg reported that the meeting struck a more supportive tone while leaving hopes for stronger stimulus unmet. The New York Times similarly reported that the Politburo did not endorse broad action to address weak consumer spending. ### What did Beijing say about property? China Economic Review reported on August 5 that the Politburo reaffirmed support for stabilizing the housing market but stopped short of any major new property stimulus. (wifc.com) The publication said that left investors looking for local support measures rather than a central-government package to revive the sector. (bloomberg.com) Property has remained the area where markets most often look for a stronger response. Goldman Sachs has said in earlier research that the drag from housing may lessen, but structural weakness in household consumption and the labor market remains. ### Why are Goldman Sachs analysts talking about the yuan? South China Morning Post reported on August 6 that Goldman Sachs analysts argued China needs a stronger yuan and fiscal support to drive near-term growth, rebalance the economy and offset rising external trade barriers. (chinaeconomicreview.com) The report said the bank saw targeted stimulus and gradual currency appreciation as a way to support domestic demand while addressing a record trade surplus. (goldmansachs.com) That recommendation differs from the policy stance signaled after the Politburo meeting. Reuters said Beijing’s immediate response was to speed previously approved spending, not to announce a fresh round of large-scale demand support. ### Why is tax enforcement part of the same story? The Financial Post reported on August 6 that China had begun a global hunt for hundreds of billions of dollars in unpaid taxes going back decades, with the campaign aimed at wealthy individuals and offshore holdings. (msn.com) FT Chinese reported the same day that the effort reflected mounting fiscal pressure as Beijing tightened scrutiny of overseas capital gains and trusts. (wifc.com) CNBC reported on August 5 that Beijing’s move to tax offshore trusts had already sent wealthy Chinese clients to lawyers and advisers. That reporting described a scramble to understand how authorities would treat offshore structures long used to hold family wealth and pre-IPO stakes. ### What are investors watching next? (financialpost.com) August housing transactions, local government support measures and major land sales are the next tests for whether Beijing’s July 30 stance changes conditions on the ground. China Economic Review said those indicators would show whether activity is broadening beyond the strongest cities. (cnbc.com) Goldman Sachs’ call for a stronger yuan and more fiscal support, published on August 6, gives investors another benchmark for what a more forceful response could look like. For now, the official signals since July 30 point to faster execution of existing plans rather than a new nationwide stimulus program. (msn.com) (chinaeconomicreview.com)