By Gabriel Crossley

BEIJING (Reuters) – More policy support for China’s economy, including boosts to banks’ lending power, is likely in coming months, some analysts say, to dispel gloom cast by property cooling measures, a burst of regulatory vigour, and China Evergrande Group’s woes.

Nomura analysts said this week that China’s property sector, overall economy, and credit risk will decrease notably. This comes as global markets were shaken by fears about a China Evergrande Group default.

Economists downplay the idea that the scale of Evergrande’s problems represent a “Lehman moment” https://www.reuters.com/world/china/china-evergrande-inches-close-default-deadline-investors-wait-2021-09-21in terms of global contagion risks, but it has certainly complicated matters for Beijing’s policymakers.

These officials have attempted to reduce rampant borrowing as well as prevent the property bubble. Property is an important driver for demand for steel and concrete in China and accounts for 25% of its economy.

The authorities reiterated that housing is meant to be lived in and not for speculation, which has led them to limit developers’ debt ratios as well as restricting access loans for home buyers.

A regulatory tightening across many industries under President Xi Jinping’s “common prosperity” push has increased uncertainty in companies and roiled shares markets. This includes banning private tutoring and limiting online minor gaming.

Although officials have stated earlier in the month that they expect another decrease in cash reserves by banks this year after cutting in July’s, many analysts believe this will be followed up with another.

Capital Economics posted Wednesday that policy rate reductions by the PBOC may be possible as the economy is losing steam, and there are growing concerns regarding the property market.

Others analysts believe a reduction is possible, but not likely before the end the year.

China did not change its benchmark lending rates for households and corporations for the 17th consecutive month following September’s fix.

China’s economy recovered from a coronavirus-induced crash in 2020. However, activity declined recently due to regulatory actions, supply shortages, and restrictions caused by localised COVID-19 epidemics.

Bank of America (NYSE) lowered its China growth forecast this year to 8.0%, from 8.3%. It also reduced its 2022 outlook to 5.3%, from 6.2%.

HOME PRICES SLOW, NEW BUILDS FALL, LOANS WEAKEN

More than 20 cities strengthened curbs on the property sector in August, when China’s home prices showed the slowest monthly rise since December. In the past year, new properties started in eight months were down 3.2%.

Larry Hu, Macquarie’s chief economist, stated that the property downcycle might cause increased growth pressure next year. In this case, policy support could shift to regulation in order to protect the bottom line of 5% growth.

He suggested that investors should pay attention to next year’s priority signals from China’s Politburo at the December meeting.

New regulations in tech and education have slowed business, and has wiped out hundreds of billions from company valuations.

Iris Pang from ING’s Greater China chief economist, stated that the regulation clampdown was responsible for August’s slow loan growth.

According to her, some companies aren’t taking out loans due to uncertainty or because they have reconsidered investment.

Pang from ING stated that the August data on services activity for August was extremely poor due to the government’s crackdowns in education and technology.

Reuters reports that TikTok owner Bytedance said to employees last month it was planning to cut back its tutoring and education operations, as well as layoffs. Juren Education Group was a tutoring company that provides after school services. It announced it planned to close down earlier in the month.

The COVID-19-related restrictions caused a significant contraction in the services sector’s activity in August, which was the first since February 2003 when it experienced the worst pandemic.