The Rebound In Economic Fundamentals Will Take Some Time.

Driven by a low base, real economic activity in November stabilized temporarily, but real estate construction activities continued to deteriorate, indicating that the fundamentals of the economy needed to rebound for some time.

UBS said that a series of micro stimulus policies launched by the policy makers since the two quarter have begun to support economic growth, such as steady consumption, real estate sales and infrastructure investment.

UBS expects that the micro stimulus policy will continue to be overweight in the next few months, such as stimulating car consumption and speeding up special construction debt allocation to boost key construction projects, speed up the deregulation of corporate bonds and other means of financing, and continue to cut interest rates and reduce SLF rates.

UBS believes that monetary policy is still necessary for further easing, including lowering interest rates and downgrading, thus ensuring that the overall liquidity environment continues to be loose and the real financing costs of the entity are downwards in the context of the depreciation of the RMB against the US dollar and capital outflow, so as to prevent the risk of debt deflation trap.

In addition, the rapid and effective promotion of infrastructure and public projects also requires adequate credit support.

The strong growth of new credit in November should help to sustain economic growth in the coming months, but investment related medium and long-term corporate loans are still relatively weak, indicating that investment demand is still weak.

UBS believes that with the support of policy, corporate bond issuance has increased significantly, but if there is no substantial improvement in the fundamentals of the business sector, this trend is hard to continue.

It has been published and will be introduced in the future.

Policies should be able to support short-term.

To stabilize industrial production and investment in fixed assets in the four quarter.

However, although the GDP growth rate stabilizes in the four quarter and the future policy will be overweight, the downward pressure brought by the continued downturn in real estate construction will continue to increase, coupled with deflation pressure.

UBS said that policy support measures should partly offset the real estate and excess capacity in the next two years.

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However, the effect of infrastructure investment and other stable growth policies will be diminishing marginal, while other reform related policies will still take time.

Only when the overall construction activities of real estate are stopped, excess capacity and enterprises can be effectively cleaned up, can the economy really become stable.

As a result, UBS's forecast for GDP growth in 2016 to decline from 6.9 this year to 6.2% remains unchanged.