China: Policy flexibility to absorb external shocks – Standard Chartered

Sandeep Kanihama FXStreet Contributor

According to analysts at Standard Chartered, even though China seems to be striving for the best but preparing for the worst in dealing with the trade stand-off with the US.

Key Quotes

“The tariff truce agreed by both countries at G20 indicates motivation to reach a trade deal. China has committed to further liberalisation and protection of IP to prevent supply chain relocations due to protracted trade friction. Pragmatists in the Trump administration appear to have gained the upper hand for the moment as worries about a fading fiscal stimulus and higher tariffs are causing a slump in the stock market. However, a deal is anything but assured.”

“The government faces the challenge of getting the policy dosage right to achieve the growth target while avoiding excessive stimulus. It may set a flexible growth target of 6.0-6.5% for 2019. We expect the official budget deficit to be increased to 3% of GDP from 2.6% in 2018, indicating expansionary but still-prudent fiscal policy. In addition, the local special bond issuance quota (or the ‘shadow’ deficit) may be increased by 0.4% of GDP to deal with a no-deal outcome.”

“We see balanced risks to our above-consensus growth forecast of 6.4%.”

“A deal with the US, even if temporary, would allow the government to scale back the planned stimulus.”

Author

Sandeep Kanihama

FXStreet Contributor

Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.

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