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As noted by Bloomberg, China’s government is increasingly likely to begin turning on the taps on more fiscal stimulus measures to support the broader Chinese economy in an effort to boost China’s growth out of its current slowdown, which remains significantly hampered under pressures from the Sino-US trade war.

Key highlights

Following the Chinese Politburo’s announcement on Wednesday that it is dedicated to taking “preemptive and prompt” steps to bolster China’s economy, Guo Lei, an analyst at GF Securities Co, noted that current restrictions on monetary policy are likely to be loosened in a two-pronged effort to reduce contractionary tensions:  “The restrictions on monetary policy are obvious… for fiscal policy, there’ll be but two directions. One is tax reduction, the other is resuming fiscal spending and infrastructure.”

Chinese policymakers have pledged to continue cutting value-added and personal income taxes, and economists are expecting the Shanghai government to further reduce corporate income tax  brackets, as well as reducing social security premiums to ease the burden on growth-strapped companies.

Following larger tax cuts, China’s budget deficit is expected to grow, with Bloomberg surveyed economists expecting a year-end budget deficit of 3.8%, and China’s secret weapon, local government special bonds, will likely see quota limits increased from 2018’s 1.35 trillion Yuan limit.

Further cuts to China’s RRR are also expected, with ING’s Iris Pang predicting that China may consider an RRR cut of 1% ever quarter, while Citi’s Liu Li-gang expects the Chinese government to begin looking at easing credit and lending policies in an effort to increase firms’ access to bank loans and lending markets.