Monetary Stimulus – Pumping Q1 2022
On the morning of December 6, local time, China’s President Xi Jinping presided over a meeting of the Politburo of the Communist Party of China (CPC) Central Committee, where he set the tone for the upcoming three-day Central Economic Work Conference and greenlighted a 50-basis points reduction in the Reserve Requirement Ratio by the People’s Bank of China later that evening. Before that, the PBoC, from what we understand, had been planning to wait until after the CEWC to cut the RRR.
From a policy perspective, Premier Li Keqiang, Vice Premier Liu He, and the senior economic leadership in Beijing have put top priority on stimulating growth going into and through Q1 of 2022. That is due both to concerns over slowing growth going into the new year, and difficult base effect comparisons to 2021.
Beijing expects to round out 2021 with an annual year on year GDP growth rate a bit above 8.0%, and is forecasting, or perhaps stated more accurately, targeting GDP growth of above 5.0% for 2022. In the words of one senior economic official, “The top priority for current monetary policy is to ensure economic stability in the first quarter of next year. Given the likely low growth in the first quarter, there is a possibility of another RRR cut before the “Two Sessions” [that is, early March].”
On the base effects, “Given the high GDP growth base [effect] in the first quarter this year , it is very important to ensure year-on-year growth in the first quarter of next year. To this end, the Chinese government will give top priority to stabilizing economic growth in the next few months.”
The Communique of the 2021 CEWC will be intended to demonstrate that China has made economic stability its top priority for 2022. From the Party’s perspective, “As long as economic growth can be maintained above 5.0% in 2022, we will be able to lay a solid foundation for maintaining average annual economic growth at more than 5.0% during the 14th Five-Year Plan (2021-2025).”
Boeing Politics – Toying with Planes
A senior official in Beijing points to the linkage between China’s restoration of airworthiness to the Boeing 737 MAX and China’s own domestic COMAC C919.
The Civil Aviation Administration of China (CAAC), he notes, and the US Federal Aviation Administration (FAA) have reconfirmed permission by each authority to leverage approval completed by the other with respect to design, production, and airworthiness. It recognizes the full reciprocal recognition of aviation products between China and the US, including C919 and the Boeing 737 MAX. This official believe COMAC will have the C919 certified in 2022.
As to the politics of Boeing diplomacy, Beijing remains guarded in trying to keep some leverage on Washington, and sources pointedly note that Boeing 737 MAX’s regaining of airworthiness from CAAC “only fulfills the basic requirement, it still needs to complete a series of works including aircraft modifications, parked aircraft restorations and pilot training. If all goes well, the Boeing 737 MAX will resume flying in China early next year.”
More substantively, as to placing orders for new planes, Beijing is playing some hardball, at least for now. The same source notes, “It is too early to talk about Boeing aircraft orders. Chinese airlines will consider buying Boeing aircraft only after Boeing 737 MAX returns to normal in China, the global aviation industry returns to pre-pandemic levels, and the US begins to gradually eliminate punitive tariffs on Chinese goods. In addition, we told the US side that an inevitable and necessary condition for China to order Boeing aircraft is that Boeing does not sell military weapons to Taiwan.”