(Bloomberg) – Beijing's main defense against the war this year is likely to come from the Treasury than the central bank, regardless of what President Donald Trump says.
If tariffs start to hurt China's growth this year, there is plenty of direct fiscal firepower left to quell the economy before the People's Bank of China would have to cut interest rates, according to an analysis of Bloomberg's public spending. Data released on Wednesday showed a transition break in April.
"Chinese leaders will better use different types of political tools than their US counterparts if the trade war persists, and that is where China's confidence comes from," said Serena Zhou, economist at Mizuho Securities Asia Ltd in Hong Kong. fiscal policy to the dominant role of state enterprises is China's control of the economy obviously stronger than the United States, "she said.
Yes, the PBOC governor Yi Gang has spent the last year and said he wants to avoid a" flood "of stimulus and Stimulates against expectations of benchmarking interest rate cuts when trying to remove market bubbles and keep the lid on debt growth.
As said, economists from Morgan Stanley and China International Capital Corporation to Macquarie Securities expect further cuts to the share of deposits that banks are forced to lock away , because the authorities seem to hold
Authorities have been raising tax expenditures earlier this year than they usually do, with the most obvious front-loading coming in infrastructure-related areas such as transport and environmental protection.
Yet, more than two-thirds of the total "augmented" budget – the general public C budget, the state-financed budget and the special government bonds – remain unused.
Of course, it is only to increase this year's expenses not the limit for tax measures if the trade war blows out and significantly affects economic growth. Officials can support growth by selling more debt through municipal finance vehicles and political banks, but the goal of cleaning up the debt is beginning to clear.
"China can strengthen its growth policy for the United States for additional fees of $ 300 billion worth of Chinese goods" and the main policy options include expansionary fiscal policies such as tax and fee cuts, according to CICC economists.
A strong growth rate is likely to provide a "whatever" decision maker needs. Otherwise, the Communist Party faces the failure to meet its long-term growth target, just in time for its hundreds in 2021.
For its part, the PBOC has also leaned toward a relief process since this month as escalating trade tensions.
Compared to the room for more fiscal stimulus, the PBOC has less room to maneuver and is likely to adhere to the "targeted strategy" for now. However, universal cuts to reserve requirements and interest rates are on the table if the economy faces greater challenges, says Wang Yifeng, chief banking analyst at Everbright Securities Co. in Beijing.
The central bank has seemed to be more accommodating in open market operations since the beginning of May, with the addition of liquidity to stabilize the market sentiment. Monetary policy officials also tried to alleviate investors by saying that it has plenty of policy space and tools to deal with any uncertainties.
"We cannot quantify the impact of the trade war on corporate feelings, so the real influence can be greater than what the financial accounts propose, reinforcing the case for more pro-growth policy," said Morgan Stanley economist Robin Xing in Hong Kong.
– Using Shuqin Ding.
To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at firstname.lastname@example.org; Ling Zeng in Shanghai at email@example.com; Heng Xie in Beijing at firstname.lastname@example.org
To contact the editors responsible for this story: Jeffrey Black at jblack25 @ blomberg.net, Brian Swint
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