The Politburo on Wednesday signaled more stimulus could be on the cards next year, saying fiscal policy will be kept active with a focus on improving its efficiency, while monetary steps will be “targeted and forceful.” China will “push for overall improvement of the economy,” the official Xinhua News Agency said in a readout of the meeting. 

Larry Hu, head of China economics at Macquarie Group Ltd., said the message from the Politburo meeting was “loud and clear: Zero-Covid is behind us, and growth would be the top priority for next year.” The signals suggest policymakers want to bring next year’s growth rate back to its potential of above 5%, he said.

The growth outlook for next year remains highly uncertain, given a likely surge in coronavirus infections and further disruption expected to the economy. The global economy is also at risk of falling into recession, and a recovery in China’s property market remains elusive.

Eoin Treacy's view

China has built permanent plague hospitals in several of the largest cities. That is in preparation for a significant rise in the number of COVID infections. Now that the restrictions on movement and the draconian testing regime are being relaxed, the number of cases is likely to surge.

There is no reason to expect the pattern of infections will be any different in China. Cases will surge into the tens or even hundreds of millions in short order. The easiest way to manage that is to stop testing so the numbers are less scary. That’s exactly what is happening. There is every reason to expect the number of cases will peak within three months as more and more people become infected and recover.

In advance of that event, fiscal spending is being increased. I think we all know what that looks like. We’ve seen plenty of examples of outsized fiscal support during the highest infection point of the pandemic. China will not have direct transfers to citizens, but there will be more money in the system to deal with sluggish growth in the first half of the year.  That will ultimately help to put a floor under the housing sector and will do nothing to solve the contradiction of local governments relying on land sales to fund themselves.
The Hang Seng pulled back from the 200-day MA today with a downside key day reversal. That suggests a peak of at least near-term significance. If the lows are in, the 15,000 level will continue to hold during an pullback.