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Analysts at Standard Chartered note that the China’s official manufacturing PMI eased to 50.1 in April after increasing to 50.5 in March.

Key Quotes

“The above-50 reading confirms a stabilisation of the economy, after seasonal and VAT-related distortions are removed. However, the official PMIs and their sub-indices – along with the Caixin PMI and our SMEI – indicate the March rebound was anything but solid. This should be enough to convince the government that a scale-back of the planned stimulus would be premature.”

“We see no disruption to the rollout of China’s planned stimulus. The high-level Party meetings in April called for further counter-cyclical adjustment, more proactive and effective fiscal policy, and prudent and appropriate monetary policy.”

“We believe that the “better safe than sorry” mentality will prevail in the near term, and the reason for a reserve requirement ratio (RRR) cut remains intact. However, the government may turn tough on unplanned stimulus, such as property policy easing and credit growth, which has tangibly surpassed nominal GDP growth.”

“A dial-back of stimulus is likely mid-year if Q2 data confirms a recovery and US-China trade talks conclude positively. Recent statements by China’s leaders suggest the government is prepared to implement market opening measures, which bodes well for a trade deal by June. Spending on infrastructure may be scaled back to save fiscal firepower, but the room for higher interest rates is limited.”