Asian Markets

Take China's easing signals with a grain of salt

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HONG KONG, Dec 7 (Reuters Breakingviews) - China investors hoping for relief got mixed messages. In a Monday political meeting, officials flagged a fresh focus on economic stability while the central bank pumped 1.2 trillion yuan ($188 billion) into banks read more . Some battered sectors will get political breathing room, but this probably isn't the stimulus traders were looking for.

After a tumultuous year of rectification campaigns in sectors from property to education to technology, China's top decision-making body, the politburo, announced that economic stability is paramount next year. That’s not particularly new language, but the lack of tough talk about tech monopolies and "disorderly capital expansion" this time around is good news for affected sectors. Ride sharing app Didi Global (DIDI.N) and e-commerce giant Alibaba (9988.HK), both particular targets of regulatory ire, saw their U.S shares jump 10% overnight in apparent response. Instead the meeting promised “ample liquidity” – another standard phrase – plus support for home buyers' “reasonable” demand.

The response in domestic equity and fixed income markets was restrained; the benchmark CSI300 index opened up just 0.8%. That is probably because of the things that were not said or done. Officials have repeatedly said they will not indulge in “flood-style stimulus” and they are serious. For one thing, it means holding interest rates in place. Targeted measures at strategic industries like silicon chips will not spill over into adjacent markets much.

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Reversing the crackdowns is not on the cards either. In real estate, for example, the politburo was clear that pressure on speculation and leverage will be sustained; the push will be for more public housing.

Even the bank reserve ratio cut is conservative. The actual net injection is only 700 billion yuan after accounting for funds that will go toward rolling over maturing loans, Nomura estimates. Policymakers are worried about slowing growth – which may fall to below 3% next spring – but rightly or wrongly, they aren’t panicking yet.

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- China's politburo, the country's top-decision making body, convened a meeting on Dec. 6 where it discussed economic priorities for 2022, according to a summary of the meeting published by the official Xinhua news agency late that night.

- The politburo concluded that economic stability is the biggest priority next year, requiring more efficient fiscal policies and flexible monetary policies.

- China's central bank said on Dec. 6 it would cut the amount of cash that banks must hold in reserve, releasing 1.2 trillion yuan ($188 billion) in long-term liquidity. The cut will take effect from Dec. 15.

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Editing by Pete Sweeney and Katrina Hamlin

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