Rumblings from China's State Council have indicated more policy loosening was on the way on the mainland, Goldman Sachs said.
The bank pointed to China's State Council meeting this week, which discussed plans to streamline the approval process for investment projects, and to a State Council announcement last week that inspection teams would be sent to ensure the projects would be carried out in a timely manner.
"We believe these two events are important signals that the government intends to loosen cyclical policy for the second time this year," Goldman said in a note Tuesday. "The decision to step up policy support again now is likely the result of renewed weakness in activity growth, especially in fixed asset investment (FAI) growth."
China's FAI for the January-to-July period rose 8.1 percent, missing a Reuters forecast for 8.8 percent and marking the slowest growth since 1999, according to Reuters. Private sector FAI growth was just 2.1 percent on-year in the January-to-July period, down from 2.8 percent growth in the first half of the year. At the time, analysts said the data were concerning as it could herald a sharper slowdown in the economy.
Goldman expected fresh stimulus would have a "significant" impact as the measures target the two most important barriers to speeding up FAI growth, which were the willingness and ability to invest.
"As for willingness to invest, the inspection teams effectively force lower-level officials (who have often being accused of inertia during the anti-corruption campaign) to carry out their duties," Goldman said. "While some skeptics may say that sending out inspections will not solve the problem fundamentally, actual experiences in recent years indicate that they do tend to make lower-level officials more proactive than usual."
Goldman noted a large number of existing projects weren't being carried out in a timely manner, with the State Council discussing this week establishing a system of rewards and penalties for implementing investment projects and advising local officials to create timetables.
When it comes to the ability to invest, that's mainly about funding, Goldman said.
"The key focus of the funding is likely to be off-budget quasi fiscal supports via policy banks," the bank said. "This funding has the practical advantage that it doesn't make the budget deficit appear to be too large and is relatively easily controllable by the government, contrary to the lending activities of listed commercial banks."