Event: 1) on December 3, when meeting with the president of the IMF, the premier said: China will formulate policies around the needs of market players, reduce reserve requirements in due time, increase support for the real economy, especially small, medium and micro enterprises, and ensure the stable and healthy operation of the economy; 2) As usual, the central economic work conference will be held soon. Core conclusion: the most important goal of China's macro environment in 2022, one word, stability; The policy has officially shifted and made every effort to stabilize growth.
1. The prime minister's raising and lowering of the standard in July was unexpected. This raising and lowering of the standard is expected. The core lies in the consensus that the current economic downturn is great. In view of the formulation of the 430 Politburo meeting of "a window period with relatively small pressure on steady growth" superimposed on the economic improvement in the second quarter, the mid year outlook of the market around June almost predicted that the monetary policy might be tight in the second half of the year, so on July 7, the Prime Minister of the national Standing Committee proposed to reduce the reserve requirement, which was generally "unexpected". In contrast, through the recent actual economic performance and the latest statement of the decision-making level, it can be said that the economic "pressure mountain" is a consensus, including the prime minister's repeated reference to "new downward pressure on China's economy"; 11.22 the premier's Symposium proposed that "the new challenges faced by China's development are intertwined and superimposed, exceeding expectations"; 11.19 the central bank's monetary policy report first mentioned that "it is more difficult to maintain the stable operation of the economy". Therefore, since November, many institutions, including us, have predicted that the monetary policy will be stable and loose in 2022, and may reduce reserve requirements or even interest rates.
2. The central bank has two most likely announcement time points for this RRR reduction: within the next week, or at the beginning of the year. On the one hand, as usual, in recent years, the prime minister or the national Standing Committee have mentioned the RRR reduction six times, except that the central bank did not implement it on June 17, 2020, The other five times, including July this year, were announced by the central bank within two weeks (2 days at the fastest and 11 days at the slowest), so this announcement should only be a matter of time. On the other hand, in the past, the time point when the central bank announced the RRR reduction was generally in the first and middle of the month, around New Year's day or before the Spring Festival, mainly due to the large amount of tax payment and MLF maturity, usually in the middle of the month (before and after the 15th) and the Spring Festival. Therefore, given that 950 billion MLF expires on the 15th of this month (the second largest scale in the year), it is an optional time point to announce it in the next week (but it should be noted that the central bank has never implemented the RRR reduction in December before); if it is not announced this month, the next optional time point is the beginning of the year or the first ten days of January, in order to alleviate the liquidity tension before the Spring Festival (the Spring Festival is on January 31, 2022). Of course, it does not rule out that the central bank announced the RRR reduction this month, but the real implementation is in January.
3. It is likely to reduce the standard in an all-round way, and the range should be at least 50bp; And after the RRR reduction, interest rates may be cut. The prime minister pointed out that the "timely RRR reduction" is to "increase support for the real economy, especially small, medium and micro enterprises". Then the RRR reduction can be used to hedge MLF, alleviate the liquidity of the Spring Festival and the possible early issuance of special bonds in the first quarter of next year. He tends to think that a comprehensive RRR reduction of more than 50bp is a probability event. In addition, in view of the limited substantive role of the RRR reduction in reducing financing costs and hedging against the economic downturn, the subsequent central bank may cut interest rates. At the time point, the economic pressure is the greatest in Q1 next year and the probability of "early reduction and early improvement" is high in the next 1-2 months.
4. "Timely RRR reduction" indicates that the follow-up monetary policy will be generally loose, and China's interest rate is also expected to usher in a downward trend. The prime minister's proposed RRR reduction clearly points to the overall looseness of China's monetary policy in the short term. Driven by this RRR reduction, the yield of 10-year Treasury bonds is expected to reach below 2.8%. We also maintain the view of the annual report: there is more downward support for interest rates in the first half of 2022, and the upward risk increases in the second half of 2022. The whole year should be dominated by shocks, and the center may be between 2.7-3%. 5. Prospect of the central economic work conference: as usual, the central economic work conference will be held at the end of the year. Maintain the view of our annual report and look forward to 2022, the most important goal of China's macro environment, one word, stability; Steady growth is the most important, We expect that the GDP target growth rate in 2022 may be set at about 5.5% (the agreed target should be 5-5.5%; the bottom line should be more than 5%); we also need to take into account six major objectives: short-term loose real estate vs medium and long-term economic transformation; short-term inflation control vs medium and long-term double carbon; China's loose currency vs declining global liquidity; tightening China US relations vs complex Geopolitics; and China's "dynamic zero clearing" Vs open the door; Steady growth vs promoting reform, adjusting structure, preventing risks and strengthening supervision. Specifically, the central economic work conference has four highlights:
1) On the economic situation: it should emphasize that the expected goals can be achieved this year, but it will emphasize the increase of difficulties and challenges. It should highlight the changes in the epidemic situation and the many uncertainties in the external environment. It should add the expression "the economy is constrained by structural and cyclical factors".
2) On the macro environment: 2022 should be highlighted as the key year of the 14th five year plan, the year of the 20th National Congress, and the second 100 years of the party.
3) For the overall tone: the conference should highlight the references of "high-quality development, maintaining strategic concentration, stabilizing the leadership, cross cycle adjustment and strengthening the forward-looking pertinence of policies", and emphasize "welcoming the convening of the 20th National Congress with excellent achievements"; Statements such as "six stabilities and six guarantees", "the economy needs to maintain a reasonable range" and "balance the relationship between risk prevention and steady growth" should be added; For monetary finance, it should highlight "more active fiscal policy; stable monetary policy and reasonable and abundant liquidity".
4) Key work: every year, the central economic work conference will put forward 6-8 key work for the next year. In 2022, the tasks of "double carbon, expanding domestic demand, scientific and technological innovation, reform and opening up, common prosperity, real estate and Rural Revitalization" should be highlighted, including double carbon, Pay attention to whether to add the expression "do not engage in one size fits all, do not engage in sports carbon reduction, and the relationship between overall planning and development"; In terms of expanding domestic demand, pay attention to the substantive measures to promote consumption, and may highlight the joint development of new and old infrastructure; In terms of real estate, real estate may be listed separately. The formulation should still emphasize "no speculation in real estate", pay attention to whether "policies for the city" will be added and whether "affordable housing" will be highlighted; In terms of common prosperity, we should pay attention to the upcoming platform for action to promote common prosperity, especially various quantitative indicators.
Risk tips: the evolution of epidemic situation, policy trend and changes in external environment exceed expectations
