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00:00Was it to stimulate or was it to stabilize. Thanks David really really nice to be with you. I think there's more to stabilize than than to stimulate. I think what you've seen right now is a clear emphasis from the Central Economic Work Conference statement on the need to stabilize growth multiple discussions of the pressures facing the Chinese economy. And as you mentioned is as Stephen mentioned you know some front loading of policy measures is likely to be accelerated at this point. One thing I would notice. I think there'll be more emphasis on monetary easing out of this rather than fiscal policy easing. One reason for that is that if you've seen throughout the last year a year and a half especially as that fiscal policy is becoming less and less effective in actually generating growth simply because local governments and local government financing vehicles are so heavily indebted that there's a long a large pressure to use bond proceeds just to repay existing debt rather than funding new spending. So there's some possibility of a real acceleration in fiscal policy early in 2022 because the you know the comparison to last year doesn't quite look the same. But over time I think in order to stabilize the economy you're going to need a stabilization in property sales and you're also going to need a stabilization in credit growth. And both of those things will probably require monetary easing to gain momentum. And so we're really watching you know the next MLS adjustments on the 20 the next I.M.F. adjustment on the 15th and the potential for the MPR to be adjusted on the 20th. Well it seems like they if that is the route that they will pursue it. It seems like they will need to do more. I mean I've been to your point right on the fiscal side. Yeah. But on monetary credit and both is negative. You know triple our cut as widely has been widely priced in already for the first quarter of next year. Incrementally. What else do they need to do to your point on monetary policy then. Right. Transmission has been a problem throughout this year. So what we have seen is very deliberate efforts. And I think the markets kind of underestimated how much the PBS has already done to reduce bank funding costs. What we haven't seen is those bank funding costs being passed on to end borrowers through a reduction in the NPR and in through our overall corporate borrowing rates. If you look at short term bill financing rates for example those rates are very low and those indicate very weak private sector credit demand. So the bigger the bigger picture here is yes there is a case for the credit impulse to stabilize but that probably will require more monetary easing. It probably won't occur until around the second quarter of next year. You know sometime in this sort of April May range is probably the earliest this can take place. But if you're controlling lending to the property developers still with a loan concentration caps in place and you're controlling lending to local governments in general to try to control their debt it is very difficult to get overall credit growth higher without actually stimulating private sector credit demand. And that's really what's missing at this point. It's one of the things that's missing at this point in the case for a more sustainable recovery. Logan just to take also that part to the equation obviously we mentioned profit. So let's talk about ever grand and you know the general property slowdown there. So we understand why to try and ring fence it there. We also try. We also understand why we have those three red lines. I guess the other side to the question there. I would imagine that doesn't get as this much as is Beijing removing the economic incentive for developers to help develop the property market right away. I think this is one problem that we haven't quite seen a lot of detail on yet and I been interested in how they're going to counteract this process which is that local governments are in their own bind because Beijing is saying that it's very important that these houses be completed that all these pre all the buyers who had bought pre construction and this presales this is a massive imbalance in the market. It's fifteen point seven trillion yuan over the last 12 over the last 12 months. So this if you see a decline in sales by 20 percent or so it's really hard to offset that with policy. But what local governments are doing if they're facing pressure to build these units they're trying to put the pressure on developers as well by tightening escrow requirements. We're hearing numerous reports of that sort of tightening around the country and that makes it more difficult to complete projects. So I wouldn't be surprised if there's some attempt to try to stabilize financial conditions for developers. There is a reasonable chance that with the Politburo statement expressing more support for reasonable demand of the housing market that that could offset some of financial developers risk aversion. But that's the hope. Well can we at least say the worst is behind us. It's going to take some while to heal. I think the worst of the policy tightening is definitely behind us and we've definitely turned a corner in that respect. I'm not sure we can say the worst of the financial or economic fallout is behind us. And the transmission channel I'd be most concerned about is through local governments because they have. We've only started to see we've seen land sales decline by about 40 45 percent over the last two months based on one hundred city data. That's going to put a lot of pressure on local government finances and on their ability to service local government financing vehicle debt. And in the on we've seen a lot of tension in the onshore credit market and the offshore credit markets. We haven't seen as much tension in the onshore credit markets and the the channel of contagion. I think Beijing would be most concerned about that. Everyone be concerned about is the potential for LG the debt starting to default in larger numbers.

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Making Sense of China’s Economy

Logan Wright, director of China markets research at Rhodium Group, discusses China’s economic priorities for next year and their potential impact on the economy. He speaks on “Bloomberg Markets: China Open.”

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