The Political Bureau meeting set the tone for the economic work in the second half of the year
On July 28, the Political Bureau of the Central Committee of the Communist Party of China held a meeting to analyze and study the current economic situation and plan the economic work for the second half of the year. Regarding the full-year growth target, the meeting emphasized striving to achieve the best results. Regarding the macro incremental policies expected by the market, local special debt has been an important tool for stabilizing growth in recent years. The meeting proposed supporting local governments to make full use of the special debt limit. In terms of making every effort to stabilize expectations, this meeting released many positive signals. In terms of epidemic prevention and control, it proposed to ensure the orderly operation of key functions that affect economic and social development. In terms of real estate policy, it proposed to ensure the delivery of buildings and stabilize people's livelihood. In terms of platform economy, it Reaffirm normalized supervision and launch a batch of green light investment cases.
The economy grew by 2.5% in the first half of the year and withstood the pressure to achieve positive growth in the second quarter. Against this background, the market is paying particular attention to the economic growth targets and macro policy arrangements for the second half of the year. According to Xinhua News Agency, the Political Bureau of the Central Committee of the Communist Party of China held a meeting on July 28 to analyze and study the current economic situation and plan economic work for the second half of the year.
As an economic engine, how will finance drive economic growth in the second half of the year?
The meeting proposed that macro policies should actively act in expanding demand. Fiscal and monetary policies must effectively make up for the lack of social demand. Make good use of local government special bond funds and support local governments in making full use of special debt limits. Monetary policy should maintain reasonable and sufficient liquidity, increase credit support for enterprises, and make good use of new credit from policy banks and infrastructure construction investment funds.
The interviewees all believe that it will be possible to issue additional special bonds in the second half of the year, and combined with policy-based financial efforts, infrastructure investment is expected to grow rapidly in the second half of the year. Wang Qing, chief macro analyst of Oriental Jincheng, said that these arrangements start from the two directions of fiscal and monetary policies, and are all aimed at continuing to accelerate infrastructure investment. The growth rate of infrastructure investment in the second half of the year will further accelerate from 7.1% in the first half to about 13%. The cumulative growth rate for the whole year is expected to be 10%, which is significantly higher than the 0.4% for the whole year of last year. The boost to GDP growth will reach 1 Around percentage points.
Data from the National Bureau of Statistics show that from January to June, infrastructure investment (excluding electricity, heat, gas and water production and supply industries) increased by 7.1% year-on-year, 0.4 percentage points faster than that from January to May.
This Politburo meeting stated that monetary policy should maintain reasonable and sufficient liquidity, increase credit support for enterprises, and make good use of new credit from policy banks and infrastructure construction investment funds.
In terms of liquidity, market funds have remained loose since April. Since July, DR007 has hovered around 1.5%, which is far lower than the same period in history. The absolute level is approaching the low in April 2020; DR001 fell below 1% this week, a new low since January 2021, showing market liquidity. Very abundant.
Zou Lan, Director of the Central Bank’s Monetary Policy Department, said at a press conference of the State Council Information Office on July 13 that the current 7-day weighted average repurchase interest rate of depository institutions in the interbank market is what we often call DR007. Currently, it is around 1.6%, which is lower than the open market operation interest rate. Liquidity remains at a reasonable and sufficient level but slightly too high.
It is worth noting that the central bank’s recent 7-day reverse repurchase operation has flexibly switched between 3 billion yuan, 7 billion yuan, 12 billion yuan, 5 billion yuan, and 2 billion yuan, but the interest rate has remained at 2.1 %about. The market generally believes that small changes in the scale of reverse repurchase operations will have little impact on the current total inter-bank liquidity level. It is intended to remind the market that price is not weight, and excessive leverage is not allowed.
Wang Qing said that market liquidity will not tighten significantly in the second half of the year, and social financing and M2 growth will also maintain a relatively high level in the third quarter, thereby consolidating the economic rebound momentum with wide credit. However, considering that the Federal Reserve will continue to tighten monetary policy significantly in the second half of the year, and the domestic economy has entered the recovery process, the possibility of lowering interest rates and reserve requirement ratios is low. The increased implementation of monetary policy will mainly be reflected in paying close attention to existing policy measures. Implementation.
The meeting stated that new credit and infrastructure construction investment funds from policy banks should be made good use of. The policy tools that have been introduced include: the National Standing Committee held on June 1 stated that it would increase the credit line of policy banks by 800 billion to support infrastructure construction; the National Council decided on June 29 to use policy and development finance Tools to raise 300 billion yuan through the issuance of financial bonds, etc., to supplement the capital of major projects including new infrastructure, but not exceeding 50% of the total capital, or to bridge the capital of special bond projects. This is also known as an infrastructure investment fund.
The National Standing Committee held on July 21 proposed that we should do a good job in the investment of policy development financial instruments in accordance with laws and regulations, accelerate the use of special bond funds, and guide commercial banks to provide supporting financing accordingly. Policy banks New credit lines must be released in a timely manner. Under this requirement, a financing model of infrastructure investment funds + policy bank loans, special bonds + policy bank loans can be formed.
The current 300 billion infrastructure fund has begun to be invested. China Development Bank disclosed on July 22 that after obtaining approval from the China Banking and Insurance Regulatory Commission, China Development Bank completed the registration and establishment of the fund (CDB Infrastructure Fund Co., Ltd.) as soon as possible and realized the launch of the first two projects.
As for the Agricultural Development Bank of China, the Agricultural Development Bank of China Infrastructure Fund Co., Ltd. was officially established on July 20. On July 21, the Agricultural Development Bank of China successfully invested 500 million yuan in the country's first agricultural development infrastructure fund to support the construction of a pumped storage power station project in Yunyang County, Chongqing.
Zhao Wei, chief economist of China International Finance Securities, said that in the second half of the year, monetary policy will focus on credit support, and policy banks will play a quasi-fiscal role and become an important supplement to fiscal policy.
Support local governments to make full use of special debt limits
In terms of fiscal policy, the meeting pointed out that local governments should make good use of special bond funds and support local governments to make full use of special debt limits.
According to the requirements of the State Council, the 3.45 trillion yuan of special bonds issued this year must be basically issued by the end of June, and strive to be basically used by the end of August. Data disclosed by the Ministry of Finance on July 27 showed that from January to June 2022, 4.021 billion yuan of new bonds were issued nationwide, including 614.8 billion yuan of general bonds and 3.4062 billion yuan of special bonds. In other words, from the perspective of issuance, the task has been completed, and the key to follow-up is to make good use of special bond funds.
Song Qichao, the first-level inspector of the Budget Department of the Ministry of Finance, said at a press conference of the Ministry of Finance on July 14 that the key tasks in the second half of the year are to continue to provide guidance to local governments and urge all localities to carry out special projects. The final work of bond issuance; the second is to urge local governments to allocate special bond funds in a timely manner, consolidate the responsibilities of project units, and promote the special bonds to form physical workload as soon as possible.
Supporting local governments to make full use of special debt limits has become the focus of market attention, and it is possible to issue additional special bonds in the second half of the year. 21st Century Business Herald previously exclusively reported that in late June, regulatory authorities notified local governments requiring them to apply for the third batch of local government special bond projects in 2022. This batch of application projects can include new infrastructure and new energy projects in the application scope based on the existing nine major fields such as transportation infrastructure, energy, and affordable housing projects.
Considering that this year’s special bond quota has basically been issued, the new batch of special bond projects still need to match the quota: use the remaining quota of previous years to issue special bonds, issue the 2023 special bond quota in advance and issue it this year to become two possible options.
According to Caiyu (2017) No. 89 ("Notice of the Ministry of Finance on Local Government Special Bond Types to Balance the Revenue and Financing of Pilot Development Projects"), various localities use new special debt limits, and If the portion of the special debt limit at the end of the previous year that is greater than the balance is used to select key projects for pilot classification and issuance of special bonds, the provincial government shall formulate an implementation plan and special bond management measures, and report them to the Ministry of Finance in advance for filing before organizing the implementation.
Data from the Ministry of Finance shows that as of the end of 2021, the local government special debt limit is 18.2 trillion and the balance is 16.7 trillion. There is room for 1.5 trillion in the two. However, this space is not evenly distributed among provinces, with more in Beijing and Shanghai.
Zhao Wei said that to expand demand, finance will take on the heavy responsibility and currency will cooperate with it, or the remaining quota of special bonds will be used to increase the amount. The current local special debt limit is nearly 1.5 trillion yuan more than the balance. Supporting local governments to make full use of the special debt limit may point to the remaining limit.
The other is to issue the 2023 special bond quota in advance and issue it this year. There is precedent for releasing the special debt quota for the following year in advance: from 2019 to 2022, the quotas were all released in advance, usually in November or December of the previous year (2021 is special, and the release time is in early March of that year). The release was at the beginning of the year. According to previous authorization, the State Council can issue special bond quotas for 2023 in advance, but issuance this year may require special authorization to comply with the provisions of the budget law.
Ji Fuxing, a professor at the Chinese Academy of Social Sciences University, said that general bonds and special bonds in 2023 can be issued in advance to achieve cross-cyclical adjustments. According to previous policy logic, the advance quota can reach 60% of the total amount and the scale can reach trillions. However, considering that it takes time to form the physical workload, there is no need to issue a large amount within the year. It is also a feasible option to consider issuing RMB 1-1.5 trillion in the third or fourth quarter of this year (the specific scale can be further demonstrated) to ensure a stimulating effect during the year.
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