A person walks past a coal fired power plant.
Morgan Stanley says that China's economy appears to be bouncing from a mini-downturn into an upswing as the country eases policy.
The Asian giant had tightened its monetary policy and begun aggressive deleveraging as it sought to slash debt in the property sector. Morgan Stanley said in a report that it cut the debt-to-GDP ratio by 10 percentage points in 2021.
The bank said that the pace of tightening was too aggressive because of the Delta wave and China's continued Covid-zero approach.
The bank sees GDP growth in China increasing to 5.5% in 2022.
Analysts expect China's economy to grow by about 5%. According toDeutsche Bank, the growth will be about 5%. Analysts have reduced their forecasts for China's GDP in the year 2021.
Morgan Stanley expects China's economy to go up in 2022.
The bank said that policymakers have paused on their deleveraging efforts and have started to ease their fiscal policies in the last few weeks.
There were two rounds of reserve requirement ratio cuts recently. Guidance was given to allocate more lending to small and medium enterprises.
The debacle has caused property sales to plummet.
Morgan Stanley said that relief is coming with a recalibration of policy.
Some cities are relaxing property purchase restrictions, while banks have been told to increase mortgage loans and lower lending rates. Morgan Stanley said authorities have announced plans to roll out a managed debt restructuring process.
The blow to investor confidence hit developers the hardest. Morgan Stanley said policymakers are taking steps to make sure developer funding needs are met. Encouraging banks to increase development loans and lifting bond issuance restrictions are included.
Power cuts across the country were caused by restrictions on imports of Australian coal, China's plans to reduce carbon emissions and a surge in exports.
The energy targets and goals to reduce power consumption were found to be too aggressive by Morgan Stanley as China's GDP growth relies heavily on industrial production.
The bank wrote that policymakers have acted quickly and effectively after the issue of coal shortages surfaced.
The energy targets will be adjusted in 2022, it said.
Morgan Stanley wrote that they have already seen a quick turn around in coal production and availability, with mines being restarted and electricity producers being allowed to raise prices to cover rising input costs.
The bank said that China's zero- Covid approach has led to a rise in its share of global exports.
Morgan Stanley wrote that a favorable global backdrop should drive strong trade growth.
If supply chain disruptions and bottlenecks occur next year, investors will be cautious, as China will give up its share of global exports.
