How China is tailoring policy for slowing growth - MarketWatch

BEIJING (Caixin Online) â€" Government spending is likely to increase in the third quarter as policy makers make good on promises to support economic growth in the face of a nerve-rattling slowdown in the first half, economists and analysts say.

The slowdown is generally expected to continue for some time, in part due to persistent weakness abroad that has pinched China’s export markets. Government agencies plan to ease the pain by stepping up public infrastructure investment, which drives demand for key commodities such as steel.

The upcoming surge in spending would complement other government policy adjustments, including a relaxing of real estate market controls in place since 2010, interest rate cuts by the central bank, and new incentives for banks aimed at encouraging loans to small and medium-sized companies.

Significantly, the central government has softened its stance on real estate controls since April, said Xu Gao, chief macroeconomic analyst at Everbright Securities. Supporting his position is a statement by Vice Premier Li Keqiang, who recently said Beijing “should stabilize real estate market regulations.”

Analysts say government agencies have become more willing to approve new building projects and cut mortgage interest rates. There’s even talk in the industry about a possible surge in real estate prices, some 30 months after the government imposed price-capping and lending controls to battle housing inflation.

A nine-month decline for average new home prices ended in June, a report by the China Index Academy said. In 100 cities monitored, the report said, the average price jumped .05% between May and June to 8,688 yuan ($1,366) per square meter. Separately, Huatai Securities reported substantial month-on-month and year-on-year increases in June for total residential floor space sold in 18 major cities.

Nevertheless, analysts expect government investment, not real estate, to lead the economy in coming months. Central and local governments are particularly motivated to boost spending to meet objectives of the current five-year plan and complement this year’s leadership changes, said Liu Yuanchun, a professor at Renmin University’s China School of Economics.

Rising from bottom

The year-on-year GDP growth rate may have bottomed out at 7.6% in the second quarter, said National Bureau of Statistics (NBS) Director Xu Xianchun, who predicted a “moderate rebound” for growth in the third quarter. He based his forecast on what he said is a likely recovery for Chinese export demand and property price increases.

Official data reflected lukewarm growth as the second quarter ended in June. The NBS Purchasing Managers Index, a barometer of business activity, fell 0.2% to 50.2% in June from the previous month.