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Arjen van Dijkhuizen, Sr. Economist at ABN AMRO, points out that to offset downside risks from trade war, Beijing has stepped up fiscal support.

Key Quotes

“Whatever the outcome of further US-China negotiations may bring, Beijing has already taken pro-active measures to offset potential downside risks from potential further US tariffs.”

“Late July, the Politburo of China’s communist party announced that the government will adopt a more pro-active fiscal policy and prudent monetary policy to ensure stable economic growth. In the past few months, we have seen more evidence of this.”

“On the fiscal front, the central government has for instance ordered local governments to increase the issuance of ‘special-purpose’ bonds to finance new (infrastructure) projects. There are already signs that local bond issuance has risen, although that still has to translate into a pick-up of (infrastructure) investment.”

“Related to this, the bank and insurance regulator (CBIRC) has removed a 20% cap on local government bond purchases, enabling banks to hold more local government debt in their lending books.”

“Further fiscal easing comes from the lowering of several corporate and consumer taxes, while the Ministry of Finance has announced it will lower VAT rates for exporters in response to US tariffs.”

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