September 23, 2019

China: Fiscal policy to buffer trade war losses

Share on facebook
Share on twitter
Share on linkedin
Share on email

In Short

Considering the headwinds from the US-China trade war, slowing global growth, the repercussions of past regulatory tightening of the shadow banking sector as well as idiosyncratic risks, China growth looks set to soften further.
China: Fiscal policy to buffer trade war losses
Share on facebook
Share on twitter
Share on linkedin
Share on email

Highlights:

  • Considering the headwinds from the US-China trade war, slowing global growth, the repercussions of past regulatory tightening of the shadow banking sector as well as idiosyncratic risks, China growth looks set to soften further.
  • This puts Beijing’s economic policy into a dilemma. On the one hand, it wants to reach its growth target of 6%-6.5%. On the other hand, China broke up with previous credit-financed demand policy which led to a strong increase in nonfinancial sector debt to 256% of GDP (IMF estimate) and the need to de-risk the shadow banking sector.
  • Therefore, we expect economic policy to basically compensate for the loss in growth but refrains from “big-bang” packages. Assuming the trade war status quo to hold, we expect fiscal policy to substitute for about another 0.8 -1 pp (on top of the 2 pp of GDP package early 2019). We expect the PBoC to cut RRR by another 50 bps this year, followed by 100 bps in 2020. The PBoC recently reformed the Prime Loan rate which could ease by 50 bps.
  • While the CNY may depreciate further on market forces, the bar for a deliberate strong devaluation remains high.

Read the full publication below.

CHINA: FISCAL POLICY
TO BUFFER TRADE
WAR LOSSES

Also interesting

Blue-sky-white-clouds-temperature-hot-thermometer
00:06:05
April 7, 2021
Podcast

The Spotlight ǀ Generali Investments Podcast: Some like it hot

abstract-highway-bridge-background-picture-id1131330933 (1)
April 2, 2021
Real Assets

Generali Real Estate ǀ Interview with Aldo Mazzocco, CEO

size 3
April 1, 2021
Market Commentary

COVID-19 UPDATE Facts & Figures