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(Bloomberg) – Beijing's main defense against trade-war fallout This year is more likely to come from the finance ministry than the central bank, no matter what President Donald Trump says.
If tariffs begin to really hurt China's growth this year, there's plenty of direct fiscal firepower left to stoke the economy before the People's Bank of China, according to an analysis of spending by Bloomberg. Data released Wednesday showed an across-the-board slowdown in April.
Central and local authorities in China have at least 25.1 trillion yuan ($ 3.65 trillion) in their budgets this year. That's two trillion yuan more than the ammunition China had in the same period last year – and about equivalent to the entire annual output of Germany.
"Chinese leaders will be more likely to use different types of policies than their counterparts," said Serena Zhou, an economist at Mizuho Securities Asia Ltd. in Hong Kong. "China's control of the economy is more important than the US," she said.
Indeed, PBOC Governor Yi Gang said he wants to avoid a "flood" of stimulus, pushing back against expectations of benchmark interest-rate cuts as he seeks to curb market bubbles and keep a lid on debt growth.
That said, economists from Morgan Stanley and China International Capital Corporation to Macquarie Securities expects further cuts to the rate of forced deposits.
The authorities have stepped up their tax expenditures, which they usually do, with the most obvious front-loading in infrastructure-related areas such as transportation and environmental protection.
Even so, more than two thirds of the total "augmented" budget – the general public budget, the government fund budget and special government bonds together – remains unused.
Of course, increasing this year's spending is not the limit of fiscal action and the trade war blows out and impacts economic growth significantly. Officials can support growth by selling more debt via local government financing vehicles and
"China can step up its pro-growth policies if the US imposes additional tariffs on $ 300 billion worth of Chinese goods" and the preferable policy options include expanding tax rates, as well as tax cuts, according to CICC economists.
A severe growth slowdown is likely to produce a "whatever it takes" moment for China's policy makers. Otherwise, the Communist Party faces failure to meet its long-term growth target, just in time for its centenary in 2021.
For its part, the PBOC has also appeared to be leaning towards an easing bias since this escalate escalation.
Compared to the room for more fiscal stimulus, the PBOC has less space to maneuver and will likely stick to the "targeted approach" for now. Wang Yifeng, chief analyst of banking at Everbright Securities Co in Beijing, said.
The central bank has appeared to be more accommodative in open market operations since early May, adding liquidity to stabilize market sentiment. Monetary policy officials with ample flexibility and flexibility.
"We can not quantify the impact of the trade war on corporate sentiment," the Hong Kong-based Morgan Stanley economist Robin Xing said.
–With assistance from Shuqin Ding.
To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at [email protected], Ling Zeng in Shanghai at [email protected], Heng Xie in Beijing at [email protected]
To contact the editors responsible for this story: Jeffrey Black at [email protected] Brian Swint
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