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Iris Pang, economist at ING, suggests that they are expecting the Chinese economy to grow above the 6% lower boundary target set by the government, even with a sizeable stimulus and monetary easing in place.

Key Quotes

“The ‘two sessions’ meetings held in early March set a fiscal stimulus package of CNY 4 trillion, of which around half was tax and fee cuts. The other half is coming via  local government infrastructure projects, including new metro lines and toll roads. Aside from the stimulus, some local governments have quietly relaxed housing regulations too.”

“On the monetary side, the central bank has adopted a targeted approach. This directs extra liquidity flows mainly to small private firms, which have been the hardest hit by the ongoing US-China trade war. On top of targeted liquidity for private firms, we expect four required reserve ratio (RRR) cuts in total. We’ve revised down each cut to 0.5 percentage points from one percentage point after the central bank governor said there is limited room for cuts in 2019.”

“Given that we expect the current account to be almost balanced in 2019, and the capital account still isn’t fully open, we believe the yuan exchange rate will be what the central bank claims will be “more flexible” according to market movements. This isn’t really a new thing, as the USD/CNY exchange rate has been broadly following the dollar index since mid-2016.”

“Aside from the trade war initiated  by the US, external pressure from other countries is also growing. China faces an increasingly tough external political climate as it grows in terms of economic ability, international influence, and its technology development ability.”

“Overall, we believe that despite the trade tension, China can grow by 6.3%.”