More flexible macroeconomic policy in China?

According to the South China Morning Post, China’s State Council yesterday released a statement which indicates that the priorities of macroeconomic policy may be shifting from a focus on preventing overheating and controlling inflation to ensuring economic growth doesn’t falter. The statement included the following line: “We should not only work to prevent the economy from overheating…but also work to prevent the economic slowdown…”

It is not clear what this means from a practical standpoint, but it is possible that China may relax austerity measures which have made credit tighter and curbed investment. However, the People’s Bank of China (PBOC) also released a statement yesterday after its regular quarterly monetary policy committee meeting. It indicated that it would continue with its tight monetary policy, although this would be adjusted in response to changes in the domestic and world economies.

The recent statements from the State Council and PBOC indicate that China is aware of the risks of a slowing global economy to China’s own economy. Whether this leads to a halt, or even a reversal, of the steady march of interest rate and required reserve ratio hikes remains to be seen. If there is a clear signal to that effect, the China and Hong Kong stock markets might begin to stabilize and some beaten down shares may begin to rise again.