China's key policymakers held a Politburo meeting on Thursday to chart an urgent course correction for the economy. In a notable shift in tone and substance, the Politburo vowed forceful action across several critical fronts to stabilize key sectors and restore growth momentum. The unscheduled September meeting, atypical of the usual April, July, and December sessions, highlighted the urgency policymakers faced. The language in the statement also marked a contrast. Specifically, removing terms like "prudent" in describing monetary policy and pledging a "forceful" implementation of rate cuts, signals the urgency policymakers felt to tackle the economic slowdown.
In their strongest housing pledge to date, officials committed to halting the decline in the property market, which saw new home prices decline at the fastest pace in nine years in August. Construction of new housing projects would also face stricter curbs to alleviate oversupply, while 'whitelist' loans for unfinished developments would be scaled up. To drive much-needed investment, local governments were urged to accelerate the issuance and deployment of special bonds towards infrastructure. Seen as the most direct means to spur near-term demand, local spending has faced hurdles in project selection amid deleveraging efforts.
On asset markets, the commitment to "boost the equity market" was notably more encouraging than previous vows simply to "improve stability." The language implies leaders aimed to buoy confidence through rising share prices. The Politburo further pledged stronger support for job seekers and lower-income groups, building on recent cash aid for those facing hardship. Boosting employment could help the ailing retail sector, where sales growth in August hovered among the slowest paces in years.
While details on fiscal spending increases were not provided, RMB2 trn in special sovereign bonds were reportedly planned for the year. This issuance would complement recent monetary easing by the PBOC, seeking to restore confidence through accelerated fiscal efforts amid weak private sector credit demand.
In our view, bear steepening of the CGB curve will likely play out in the near-term. The short-end 2Y yield will stay anchored amid the 30bps 1Y MLF rate cut announced earlier this week. Meanwhile, the long-end 10Y yield will see further upward pressure due to the special sovereign bond issuance. The return of investor confidence in the Chinese economy will also contribute to the upward march. 
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