China’s economy met its 5 per cent growth target last year, buoyed by a 5.4 per cent expansion in the fourth quarter, surpassing the predictions of many analysts. Building on this momentum, the government has a bold fiscal stimulus plan to inject more money into the economy, supported by monetary policy to encourage borrowing and investment....Read Full Article >>➤
Given the size and complexity of China’s economy, and the mounting headwinds this year, this plan needs to be comprehensive to deliver the long-term, sustainable growth sought by the government. To achieve that, it will need to make income distribution more equitable and social safety nets stronger, while pivoting towards an economic model driven by consumption.
Demand is lagging across China’s economy, led by a steep slump in the real estate sector. Industrial overcapacity is also rising and contributing to deflationary pressures – a dynamic that could be exacerbated by new trade and technology restrictions from Washington and trade tensions with the European Union.
Confidence among China-based CEOs has fallen, according to a survey by US non-profit think tank The Conference Board – amid growing uncertainty as the market fails to deliver robust growth and profit margins.
Arresting these trends requires a robust response. On the fiscal front, China is reportedly considering a higher budget deficit, of around 4 per cent of its gross domestic product, up from 3 per cent. Should GDP grow by 4.5-5 per cent this year, this would translate to an additional 1.6 trillion yuan (US$218 billion) in spending capacity. The authorities are also expected to increase the annual quotas of special local government bonds and special treasury bonds.
Monetary policy is set to complement these fiscal efforts. The People’s Bank of China (PBOC) has signalled plans for a “moderately loose” monetary policy, the first such easing since 2011. These plans include cutting interest rates and lowering banks’ reserve requirement ratio “when appropriate”, depending on domestic and international economic and financial conditions, as well as financial market operations. This reflects Beijing’s resolve to improve liquidity and boost lending. ...Read Full Article >>➤
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