We think the government is very aware of the downside risk to growth and is prepared to increase policy support if necessary. In his latest field trip, Premier Li Keqiang pointed out that "the economy still faces large downward pressures" and "all levels of governments should place development as the top priority", and promised to "fine tune macro policies in an appropriate and timely way, to ensure a stable growth of money and credit".

As such, we expect the government to relax policies further, including policies directly related to property, as property and economic activities weaken further later on. Such policies could include relaxation of HPR and hukou, reduction in down payment requirement, and relaxation in credit.

In addition, the government could further speed up the disbursement of fiscal budget expenditure to support the construction of key infrastructure projects. Growth-friendly reforms will also be accelerated, including opening up service and utilities to private investment.

Article is co-authored by UBS economists Wang Tao, Donna Kwok, Harrison Hu and Ning Zhang. The views do not necessarily reflect those of China Daily.

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