Macro Monday China:Stability as the key word in Politburo’s 2017outlook

rebounded 0.9% on better global sentiment as the S&P 500 reached a newhigh, while A-shares fell 0.3% as regulators tightened insurance companies’equity investments. Bond markets remained under pressure, with China’s 10-year Treasury yield up to a 1-year high of 3.1% (Fig 42). The RMB weakened0.3% against the US$ as the US$ gained after the ECB meeting. This weekthe FOMC will meet (13-14 Dec) and a 25bp rate hike is widely expected.

Politburo meeting emphasized stability: The Politburo, China’s topdecision-making body, held a meeting last Friday to discuss the policy outlookfor 2017. The meeting emphasized stability as the priority for next year. It islargely in line with our view expressed 12 months ago that, given the currentpolitical cycle, China would grow 6.7% in 2016 and 6.5% in 2017. However,the uncertainties after next year are huge while visibility is very low at thismoment. In any case, for the next six months, policy makers will likelycontinue the current “managed” depreciation, instead of floating the Yuan.

They will also keep rates on hold while tightening regulations in the housing,bond, equity and commodity markets. Meanwhile, they will make sure enoughinfrastructure projects are in the pipeline to maintain growth stability.