Ella 
Another large developer, Country Garden, is on the verge of default, and financial pressure is increasing again. The sprawl of the shadow banking system has also surfaced, with a large trust company, Zhongrung International Trust Co, defaulting on payments. Economic data in recent months has also been disappointing, with consumer spending, home sales and exports all falling short of expectations. Taking these circumstances into account, we have revised down our economic growth forecasts for this year and next to 4.8% and 4.2% respectively. In our base case, we expect policymakers to step up stimulus, following broad signals following the Politburo meeting in late July, and to take more steps to improve developers’ access to financing and boost home sales. We also expect them to provide a necessary lifeline to local governments and facilitate the restructuring of troubled major shadow banking entities. We believe that they will still strive to achieve the 5% target and take the necessary steps to at least set a floor for economic growth not to fall below 4-4.5%. ”
In early September, China took new measures to support the economy by lowering mortgage rates and reducing down payment requirements for home purchases. Early signs suggest this has already sparked interest among some homebuyers, but China could also use these tools to ease policy further if needed. On Friday, August 18, the People’s Bank of China and financial regulators met with bank executives and asked them to increase lending to support economic recovery. China may also cut its bank reserve requirement ratio (RRR) to free up more liquidity to buy credit bonds and increase lending. The reserve requirement ratio for small and medium-sized banks is 7.75%, while that for large banks is 10.75%, so there is plenty of room for downward adjustments. Finally, if necessary, China could opt for quantitative easing (QE), where the People’s Bank of China purchases bonds directly on the market. This would be a strong signal for them to step in as a lender of last resort.
