China could boost growth with supply, property reforms, tax cuts, HSBC says

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China's policymakers still have ammunition to counter the mainland's slowing economy, including supply-side reforms and subsidized housing, HSBC said.

In a note released Tuesday, the bank's economists said that runctions in China's equities and currency markets pointed to fresh fears about deflation and a hard-landing for the world's second-largest economy.

"It is increasingly clear that the concerns about economic growth has not gone away, but rather intensified over the past weeks, amplifying the already fragile sentiment," HSBC said.

Data this month showed China's economic growth rate slowed to a 25-year low of 6.9 percent in 2015, as the world's second-largest economy shifts away from its manufacturing roots. Meanwhile, the Shanghai composite is down around 25 percent since its most recent high of 3,651.76 on December 22, leaving it in a "bear within a bear" market. The index is off around 47 percent from its 52-week high of 5,166.35, set June 2015.

"It is therefore high time for policy makers to come up with a convincing package to support growth, one that includes greater fiscal expansion, continued monetary accommodation and necessary reforms to improve the supply side of the economies," HSBC said.

Supply-side reforms were one option, including tackling over-capacity in state-owned sectors and deregulating utilities and service sectors, HSBC said. The bank expects details of measures on these fronts to be released over the coming month in the lead up to the National People's Congress in March.

Indeed, HSBC cited official data that showed the iron and steel sectors had already seen 1.4-1.5 percent of their capacity cut last year, with further cuts likely on the way.

New monetary easing was another option, alongside allowing the renminbi to trade with more flexibility, including allowing more volatility in the currency, HSBC said.

"The People's Bank of China (PBOC) should continue to lower interest rates," HSBC said.

"Reserve Requirement Ratio, which locks up around 20 trillion yuan worth of liquidity can also be reduced. We continue to expect 50 basis point rate cut and 400bp reserve ratio reductions this year."

Increased infrastructure investment was a third option, HSBC said.

"Infrastructure investment accounts for a quarter of total investment and supports a whole host of related industries such as transport equipment manufacturing," the bank said.

"The authorities have approved a long list of projects that ranges from railway, urbanization-related infrastructure building to environment protection. This means that there are projects which can be put to work relatively quickly once the funding become available."

HSBC said infrastructure funding could come from increased local government borrowing quotas or via policy-bank-backed financial bonds.

On the fiscal front, HSBC suggested another two options.

Subsidies for property purchases, particularly for the 270-million-strong migrant worker community, could help stabilize the housing sector, HSBC said.

"The slowdown in housing investment from 10.4 percent to 1 percent shaved 1 percentage point off GDP growth in 2015. A stabilization, if it occurs, would be more supportive to growth," the bank's economists said.

HSBC estimated that 70-80 percent of the migrant worker growth already lived in third- and fourth-tier cities and without financing, this group can't afford to buy housing units there.

Tax and fee cuts for the "over-burdened" corporate sector also an option, HSBC said.

The bank called for VAT reforms to be rolled out to services sectors in order to provide tax savings. Fee burdens, such as insurance and social benefit contributions that amount to 34-59 percent of monthly salaries, should also be cut, HSBC added.

"The various contributions pose a very heavy burden on corporates, and should be lowered in order to re-vitalize business confidence," HSBC said, estimating that a one percentage-point cut in the top two categories of social insurance programs would result in 380 billion yuan fee ($57.78 billion) worth of savings for the corporate sector, equivalent to around 0.5 percent of GDP.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1