China's fiscal policy may continue to do the heavy lifting – Standard Chartered

Analysts at Standard Chartered suggest that, in response to higher U.S. tariffs, the Chinese government believes it has adequate room for manoeuver.

• “While a couple of experts we met suggested that there is no specific growth target that needs to be met at any cost, many still expected the government to take actions to secure above-6% growth this and next year to achieve a “moderately prosperous society” by 2020.
• Fiscal policy may continue to do the heavy lifting. The 2020 official budget deficit is likely to approach the implicit ceiling of 3% of GDP. In addition, part of the 2020 local government special bond quota will be distributed this year, although a lack of quality projects suggests the actual issuance may take place next year.
• Most experts foresee a rebound in infrastructure investment, although this may not be enough to offset weakness in manufacturing investment. Property investment may also decelerate as developers anticipate an extended period of tight policy.
• The People’s Bank of China (PBoC) is cautious about monetary loosening due to concerns about risks of credit flowing to undesirable areas. However, the State Council meeting in early September appears to have set the tone for more policy accommodation to lower the real interest rate.
• We expect another 50 bps cut in the reserve requirement ratio (RRR) and a 20bps cut in the MLF rate for the rest of the year.”