Chinese president endorses policy easing

Recent remarks from President Hu backing a broad-based policy easing signals a strong likelihood for new growth-stimulating measures.

According to Morgan Stanely, the Chinese president has revealed a major shift in focus. Instead of relying solely on consumption-driven growth to get the Chinese economy humming again, China will now try to utilize all three growth engines -- namely, consumption, investment and exports -- to boost growth back up.

"In a written interview with Reforma, a major Mexican newspaper, before the G20 Summit in Los Cabos, President Hu Jintao expressed confidence in China maintaining stable and robust growth, with targeted measures taken to 'ensure that China's economy is driven by consumption, investment and exports (in a coordinated fashion) so as to ensure steady and robust growth and maintain social harmony and stability,'" noted Morgan Stanley in a research report.

"Top policy makers have reached an agreement on the necessity of policy easing: President Hu's remarks suggest that he endorsed the policy easing measures taken so as to 'maintain social harmony and stability'. In our view, his comments outweigh the voices warning the Chinese government not to make any mistakes and "over-stimulate" the economy into inflation," it said.

"As we have suggested in previous policy comments, we believe the opposition to policy easing is waning, which enabled the benchmark interest rate cut on June 7. In our view, this is a positive development to help expedite the policy responses to the current growth slowdown," it added.

"Not just consumption, investment and exports also matter: Compared to the repeated emphasis on promoting consumption-driven growth previously, President Hu's comments marked an interesting tone shift made by the top leadership to support policy measures to boost growth from all three engines (consumption, investment and exports). We believe this will likely lead to recalibration of policy makers' remarks especially on the premier and deputy premier levels in the coming months," it said further.