Two sessions, no unexpected real estate policy fine-tuning

This year's NPC session opened on March 5, Premier Wen Jiabao's government work report. An important message is that this year's macroeconomic policy will remain stable, as reflected in the government lowered the GDP growth target. Even in the case of export slowdown, we should not shanghai villa expect the government will implement any large-scale stimulus or significantly relax the liquidity. In addition, the government work report also proposed to continue to gradually adjust the economic structure, deepening reform and opening. The government is also expected that the 2012 fixed asset investment growth will remain faster than consumption, which is consistent with our expectations.

The growth target to reduce the sound does not significantly relax liquidity means that macroeconomic policy will remain

2012 7.5% GDP growth target has attracted widespread attention. This is less than 8 percent GDP growth target for the first time since 2004. However, people understand the situation in China should know that less than 8 percent growth target, as shown in the historical data set does not mean that government does not want economic growth to 8 percent. In fact, we believe that the Government's macroeconomic policy will continue to support the economic growth of over 8%, and therefore maintain our 2012 GDP growth forecast of 8.5 percent.

However, the lower the GDP growth target is indeed issued to local governments and other sectors a clear signal that the central government has recognized this year's weak external environment, to implement sound macroeconomic policies, not significantly relax the liquidity or the introduction of The scale of the stimulus. Due to the new local government officials, there is the impulse of strong investment and growth in many places are already set for this year's growth target of more than 10%, the Central Government to issue this signal is particularly important. In addition, between 2008 and 2009, excessive stimulus and credit expansion has become the general consensus, the Government wants the utmost to avoid repeating the same mistakes, especially from external shocks and not so serious in 2008. To reduce the growth target, however, may make the market disappointed.

However, other parts of the government work report show will be fine-tuning of macro policies to support economic growth, which is consistent with the tone of government policy since the end of 2011. Broad money (M2) growth target of 14%, slightly higher than the actual value of 2011, while nominal GDP growth of over 15% from the 2011 to slow to 12 percent. Budget deficit is actually from the 2011 accounting for 1.1 percent of GDP, rose 2% in 2012 (official statements in 2012's budget deficit decreased compared to 2011, this is because the Government has allocated into the central budget stability and regulation fund of funds is also counted as expenditures). In addition, there are indications that the government will relax slightly the real estate credit limit policies to support the "ordinary" real estate sales and construction.

Investment growth will again be faster than the growth in consumption

While efforts to expand consumer demand, the government also hopes "to maintain stable investment growth. The Government expects that in 2012 investment in fixed assets and sales of consumer goods total retail sales will grow by 16% and 14%, This should make people understand. Note that these two indicators are not of GDP caliber, and should not be treated as investment and consumption in GDP caliber. We expect that the actual fixed investment in GDP caliber will increase by 11%, slightly higher than the 2011 growth rate, and also slightly higher than the actual consumption growth forecast of 9-9.5%. As we previously pointed out, to promote the consumption of structural growth requires structural reforms to increase residents' income growth or reduce the rate of household savings, or both, and this takes time. Short-term the Government will normally rely on investment to support the growth of overall GDP.

In support of fixed investment, the government stressed the need to ensure that the announced increase fiscal spending in irrigation and water conservancy and protection of housing in the funding needs of the construction continued construction projects and 12 five major projects, encourage enterprises to invest in technology and equipment to upgrade the development of new strategic industries, and investment services. We believe that local government will relax a little because the resource tax reform and expansion of local bonds and credit control more funds to support local infrastructure.

Promote consumption, the government announced that the support services sector development programs, including lowering the entry threshold of the private sector to increase government subsidies for rural medical insurance (an increase of about 330 million) to expand the coverage of rural and urban pension insurance and improve the pension and to increase the basic education expenditures. The new personal income tax program started in September 2011 and was announced at the end of the small micro-enterprise tax cuts should be to promote the consumption growth this year. The government may also encourage the purchase of energy-saving products.

From the industry point of view, the Government hopes to stop the solar wind power and other industries blind expansion, vigorously develop the "high-end equipment manufacturing energy saving and environmental protection, biomedicine new energy vehicles, new materials" industry, and control the production of automotive steel shipbuilding, cement and other industries expansion. In addition, the Government also supports vigorously develop social pension domestic property and medical care and other services.

Real estate and local finance: risk control policy fine-tuning

Local government finance may be one of the most worried about the 2011 market. It had been worried about the depletion of local government land transfer income of the local government dragged into the debt crisis and have serious consequences for the banking system. For local government finances and the banking system, we are relatively optimistic attitude, however, we still expect the real estate control policy under pressure from local government land transfer income fell 30 percent last year. In this case, the 2011 land transfer revenue growth from $ 2.9 trillion in 2010 to 3.3 trillion really surprise us. Although the coastal cities of land sales decreased significantly, but many inland cities seem to be much better. Therefore, the overall pressures facing local government finance does not seem I was concerned as big.

Of course, the pressure to reduce the more important factors probably still the attitude of the central government on local government debt. After a nationwide audit, we believe that the central government is the size of the local government debt issues than the 2011 has a better understanding, and have a general framework to solve the problem. Therefore, we believe that this year, local financing platform facing the credit limit will not be as tight as in 2011. In addition, local governments will be able to increase bond issuance (2012 issue size increase over last year to 50 billion yuan) and the resource tax reform at the margin to get more money to help maintain their spending needs. However, the Ministry of Finance is expected that the 2012 local government land transfer income fell 18 percent to 2.7 trillion yuan.

In terms of the real estate industry, the government work report that the regulation and control policies, speculative investment demand significantly inhibited, regulation and control results are showing. In fact, not just local governments continue to try to relax the restriction policy (although it is often premature death), the central government has also been adopted to relax for the first set of lending approval to relax the loans to developers that their "support" attitude of the general housing supply.

Nevertheless, we still expect the real estate control policy does not relax the 2012 real estate sales and new construction fell by about 10-15%. Of course, the protection of housing will support real estate-building activities of the whole society Premier Wen Jiabao announced this year to protect the housing completion target of 500 million units higher than the 4.32 million units in 2011.

Economic and structural reforms: the pace of limited

As emphasized in the government work report, the Chinese need to move forward in the next few years a series of difficult structural reforms. However, the Government will continue to take a gradual approach, so we expect this year, only limited progress made in the following areas:

Introduced a number of specific measures to encourage private investment into the state-owned monopoly industries and service industries, such as railway, municipal, financial, educational, medical and other fields;

Deepen the reform of resource tax, expanding the scope of ad valorem, and the new revenue sharing with local governments;

Pilot residential electricity price ladder rent house shanghai system to adjust the price of water to choose the reforms include a variety of energy products, including refined oil price formation mechanism;

Improve the transparency of public finances, including the pilot open the local government budgets and accounts.