- The rapid spread of the highly infectious Delta variant and low vaccination rates have caught much of Asia off guard.
- While year-on-year corporate and economic indicators continue to show strong recovery, quarter-on-quarter indicators reveal flagging momentum.
- The Delta variation impacted retail sales, while pollution and property restrictions weighed on the industry, causing China’s economy to slow faster than predicted.
- The expansion of new credit was fueled by a dramatic slowdown in shadow banking and government bond issuance.
Asia’s robust economic recovery from last year’s coronavirus low is losing momentum as a surge in Covid-19 cases sees shops empty again -factories close, dimming prospects for corporate profit growth after a blockbuster half-year, says an article published in SCMP.
China to secure “appropriate money growth”
Peoples Bank Of China (PBOC)
According to a statement released after a meeting with banks that examined monetary and credit conditions, the People’s Bank of China (PBOC) will keep monetary policy stable with a good cross-cyclical design. It will support high-quality economic expansion with “appropriate money growth.”Governor Yi Gang stated that the PBOC “will match the expansion of money supply and social finance to nominal economic growth” and improve the credit structure to encourage more significant funding for technological innovation, green development, and small companies.
Earlier China’s economy slowed more than predicted, with the Delta variation affecting retail sales and Beijing’s pollution and property market restrictions impacting industrial production.
Politburo’s request to “coordinate macro policies for this year and next year” was also reaffirmed by the PBOC.
According to Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong, this will encourage banks to increase lending marginally in the second half of 2021 and more significantly in early 2022.
“This will help sustain a projected increase in government bond issuance later this year and stimulate the economy next year when growth pressures are more intense”, he said.
Analyzing the Situation
Most analysts believe the PBOC would reduce banks’ reserve requirements at least once more this year to help banks repay policy loans that matured during the pandemic last year.
According to Yin Zhongqing, deputy director of the National People’s Congress’s financial and economic affairs committee, China will have no trouble meeting its goal of growing the economy by more than 6% this year, and there will be more significant pressure to stabilize growth in the first half of next year. He believes that policies from many departments should be more closely integrated.
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