Update from Mizhuo International – The 13th Five Year Plan

The attached and below from Dr Shen are always good reading . The 5 year plan will confirm the attitudes and policies of China towards the UK



On behalf of Dr. Jianguang Shen (See attachment):

The 13th Five Year Plan – China Economics Weekly 151023 interest rate and RRR cuts 151025

Discussion and approval of the 13th FYP (2016-20) will take place at the Fifth Plenum of the 18th CPC Central Committee to be held next week (26-29 Oct). The proposal will be developed into a more detailed legal document at the National People’s Congress early next year, offering guidance on policy, regulations and expenditure over the next five years. We expect the 13th FYP to include the following five key elements:

1) An emphasis on the importance of maintaining steady economic growth: As the potential growth rate of the Chinese economy has been declining in recent years, we expect the target GDP growth rate to be lowered to 6.5%.

2) Changing the economy’s growth structure: This would include boosting the service sector and upgrading the manufacturing sector. As income levels are expected to continue to grow in the next five years, so likely will the consumption structure. We expect tourism, entertainment, education and healthcare services to take a much bigger share of consumption expenditures.

3) An acceleration of structural reforms: We expect several reforms to advance further, ie investment management reform, financial reform, fiscal reform and SOE reform.

4) A discussion of regional development: China’s new Silk Road strategy and the Beijing-Tianjin-Hebei metropolitan area development plan could be integrated into the 13th FYP.

5) Further government support for emerging industries: We expect emerging industries such as nuclear power, environmental protection, new energy vehicles, high-end medical care and the Internet to receive more government support, with investment in these sectors increasing over the next five years.

In the near term, we expect the economy to stabilize in 4Q15. Six factors contributing to this are: 1) the anti-corruption campaign is fading away, and the Party will shift its focus on economic growth; 2) growth of consumption and the service sector remain robust; 3)the labour market remains stable; 4) the real estate market continues to rebound; 5) fiscal policy will continue to be aggressive, while monetary policy remains relatively loose; and 6) more favourable policies are expected over the next three months, such as approval of the FYP proposal in October, the renminbi entering the SDR basket in November and the Central Economic Work Conference in December.

Latest interest-rate and RRR cuts highlight government’s efforts to support the economy

In an attempt to counter the deepening economic slowdown, the PBoC cut its benchmark lending rate and reserve requirements for banks on Friday, 23 October. While it does not come as a surprise, we view this latest move as very positive. We do not expect any more interest rate cuts this year, but do look for one more RRR cut by the end of the year. We believe the latest cuts signifies two key points:

1) Interest-rate liberalisation has been completed, creating suitable conditions for currency convertibility and SDR membership this November.

2) Further monetary easing to demonstrate the government’s determination to support the economy this and next year.

We believe these latest cuts, coupled with other easing measures, will start to stabilise the economy in 4Q, and boost growth in 2016. We expect one more RRR cut, as well as a slight strengthening of the renminbi by the end of the year.

Jianguang Shen
Mizuho Securities Asia Limited

Categories: Uncategorized

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