China: Trade deal and more stimulus needed to stabilise growth – ABN AMRO

Arjen van Dijkhuizen, the senior economist at ABN AMRO, thinks that China’s rise of Caixin’s manufacturing PMI in recent months suggests that confidence amongst private firms is improving, reflecting targeted stimulus and rising hopes of a U.S.-China deal.

• “Hard data show that this has not led to a pick-up in private investment (yet). All this implies that for the Chinese economy to stabilize a ‘Phase one agreement’ marking the end of the US-China tariff tit-for-tat would be welcome, as the escalation of this conflict has proven to be a clear headwind – on top of the effects of China’s previous financial deleveraging campaign. It also shows that more stimulus is needed to support domestic demand.
• We continue to hold the view that Beijing will step up piecemeal stimulus. And we still expect them to refrain from aggressive easing given longer-term constraints such as the need to keep overall debt levels in check and to prevent a housing bubble. Recent measures lend support to this view.
• Following previous mini steps including further RRR cuts, in early November the PBoC cut the rate on its medium-term lending facility by 5 bps, to 3.25%. And this week, Beijing announced to lower capital requirements for certain infrastructural projects.”