China sparks rebound
CHINESE stocks jumped yesterday after the government signalled it would shift to a looser fiscal policy to shield the world’s second-largest economy from the worsening trade row with Washington.
After more than a year of pushing a crackdown on dangerous debt levels in the financial system, Premier Li Keqiang said the government’s “fiscal policy should be more active”, according to an announcement by the State Council.
Analysts said the comments marked the start of a widely anticipated swing away from clamping down on credit and toward stimulating the economy.
Chinese policymakers have had their hands full juggling competing priorities: transitioning the economy to an expected era of slower growth, while also cleansing the system of dodgy credit.
The balancing act has become even more tricky as China’s export engine braces for the impact of US tariffs on Chinese goods, imposed by President Donald Trump to punish Beijing for “unfair” trade practices.
Mr Li also stressed the government would accelerate plans to reduce taxes by more than 1.1 trillion yuan ($A220 billion) and to issue 1.35 trillion yuan in local government special bonds for infrastructure.
Chinese stocks, buffeted by the trade discord, climbed yesterday morning.
Shanghai’s key index was 1.37 per cent higher in the late morning, while the Shenzhen exchange, China’s second market, was up 1.35 per cent.
The yuan, however, weakened slightly, moving past 6.81 to the US dollar. The yuan has fallen to its lowest levels in a year due to the trade uncertainty and expectations of fiscal stimulus.
The State Council said China would “avoid strong stimulus” while vowing to maintain a close eye on financial system irregularities.
The message was “loud and clear”, investment bank Nomura said in a research note.
“We expect Beijing to ratchet up fiscal stimulus and credit easing in coming months,” it said.
“Beijing is correct by ruling out massive stimulus for now because any fiscal stimulus would be eventually financed by a new round of monetary easing and debt accumulation.”
The world’s two largest economies face a potential full-blown trade war after the US earlier this month imposed 25 per cent tariffs on $US34 billion ($A46 billion) of Chinese products, drawing a tit-for-tat response.
The US has threatened tariffs on another $US200 billion in Chinese exports.