Analysts at Standard Chartered point out that China’s slowdown so far has been driven mainly by deleveraging; higher US tariffs and a possible property-market correction are expected to put significant pressure on growth next year.
“The government has the will and the tools (especially on the fiscal side) to prevent a sharp deceleration in the next two years, although reduced policy space will make China more vulnerable after 2020.”
“Sentiment on the ground is weak. Increasing cases of debt defaults, failed land auctions and bailouts of listed companies are symptoms of more deep-rooted problems.”
“More fundamentally, we sensed widespread doubt about the market orientation of reforms amid a perceived increase in controls.”
“Tax cuts to pre-empt the relocation of the supply chain out of China are seen as likely. More reserve requirement ratio (RRR) cuts are also expected to keep credit growth in line with GDP growth.”
“We noted increasing support for a more flexible exchange rate as a shock absorber. China appears prepared to put the SOE issue on the negotiating table to contain the scale and scope of the trade war with the US.”