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Arjen van Dijkhuizen, senior economist at ABN AMRO, points out that since mid-2018, with the drag from the trade conflict becoming more serious, Beijing has shifted the policy stance from financial deleveraging to “piecemeal” fiscal and monetary easing.

Key Quotes

“Piecemeal in the sense that Beijing has opted for several rather small easing steps instead of large-scale ‘big bazooka’ stimulus, given that there are still longer-term constraints such as the need to keep overall debt levels in check and to prevent a housing bubble.”

“On the fiscal front, the authorities have cut several taxes and fees and have taken various measures to stimulate infrastructure spending. The State Council has for instance approved raising and frontloading local government quota for the issuance of special purpose bonds, for the second year in a row.”

“On the monetary front, the PBoC has cut reserve requirements for large banks by 150 bp in 2019 and by another 50bp, to 12.5%, in early 2020. That followed a total of 250 bp RRR cuts in 2018. The PBoC also implemented additional RRR cuts for banks that lend a lot to private firms/SMEs.”

“Since mid-2019, the PBoC has also started with mini cuts of several interest rates, while introducing a new benchmark interest rate. That said, compared with previous episodes of easing, the measures taken during the last downturn are less impressive so far. We expect the authorities to continue with piecemeal easing measures to stabilise the economy, but to refrain from large-scale stimulus.”