China's Politburo -- its top decision-making body, led by President Xi Jinping -- has shifted the emphasis of its economic management in three significant ways in an attempt to engineer a robust economic recovery. A goal we feel will remain elusive. 

At its meeting today, the Party-state indicated a focus on demand ahead of industrial policy and a more proactive monetary policy. And toned down the language around property investment. It's clear that Beijing understands the gravity of the economic situation, but also that it cannot do an awful lot about it. 

On balance, the market did not expect the authorities to release the so-called ‘bazooka stimulus,’ and today's readout from the Politburo meeting has been accepted as confirmation. The benign interpretation is that the authorities chose to focus on the long-term sustainability of growth. The glass half-empty take is that this shows China's pervasive debt malaise, and the inexorable toll this will take on the economy. 

In our view, Beijing knows it can't just borrow its way out of its economic problems. Trying not to inflate away its debt, but relying on structural adjustment is a positive. But we have argued that its focus on industrial policy and a supply side transformation, if successful, will only go so far and won't be enough to place the economy on a sustainable growth path. 

In this regard, today's announcement zeroed in on the need to boost domestic demand and consumption in particular. It also appeared to make this a priority ahead of industrial policy. This is good news, but the measures policymakers hope will spur consumption are unlikely to kickstart a virtuous expansionary cycle.   

The authorities want to boost the consumption of autos, electronic products and homeware and furnishings. As we discussed, local governments are disbursing spending coupons and offering subsidies on certain purchases as well as relying on tax incentives to boost auto spending. China has extended its preferential purchase tax policy for NEVs to the end of 2027. 

The NDRC -- the state planner -- put out new measures last week to boost auto consumption as well as home appliances and communication equipment, which it identified as slow-growing goods, but none of them were specific or substantial enough. Last week, the Ministry of Commerce website said that it, and 12 other departments, had issued a notice encouraging financial institutions to strengthen credit support to households for home furnishing and renovation. 

Chinese households have scope to take on more debt but it's their income and wealth that need a boost. Today's meeting talked about the need to regard employment stability as a strategic imperative and to "activate the capital market", a term not mentioned since 2013, suggesting that boosting investor confidence is key. 

But when it comes to household wealth, the omission of the phrase “homes are for living in, not for speculation” is likely to be of most significance. 

Xi Jinping's desire to put a lid on house price inflation has hurt household wealth, the majority of which is in housing. It is too early to say whether this represents a fundamental change of policy direction. By itself this is not enough to boost household confidence in property investment.

However, the Politburo set a new tone with regard to the property market, signalling the easing of home-buyer restrictions and also funding support to developers. In particular, the authorities see scope for boosting property investment and the supply of affordable housing by transforming the underdeveloped areas of mega cities. 

Last but not least, the Politburo seems to indicate that it will be more proactive with monetary policy, arguing that they need to "give full play to the role of aggregate and structural monetary policy tools".  

It also appears that counter-cyclical monetary policy is getting more emphasis than structural financial policy, while the language around 'proactive' fiscal policy did not change. We expect more RRR and MLF cuts, as well as guidance to reduce both bank deposits as well as mortgage rates. Beijing is also determined to restructure local government debt, which necessitates releasing more liquidity into the banking system. 

Conclusion

There is more to the outcome from today's Politburo meeting than meets the eye. On the face of it, the authorities did not surprise the market with a large stimulus. But the Party-state language did change on a few important points. 

While this certainly indicates intent on Beijing's part to prioritise the issues that in our view matter, it is not clear how far this represents any fundamental change of Beijing's systematic financial repression of households. 

More monetary policy easing is on the cards and we could get more insight tomorrow, if Beijing announces the appointments of China's new finance minister and PBoC governor at the NPC's Standing Committee meeting.