CRU: China to Announce More Than RMB 5tn of Stimulus

CRU: China to Announce More Than RMB 5tn of Stimulus

PR Newswire

LONDON, May 21, 2020

LONDON, May 21, 2020 /PRNewswire/ -- China will set out its major economic objectives and policy goals for 2020 at the National People's Congress. We expect fiscal stimulus of 5-8% of nominal GDP to be announced, half the size of the stimulus that followed the GFC. Most of this stimulus will come in the form of bond issuance (e.g. special treasury bonds and local government special bonds). The biggest beneficiary of this stimulus will be the transport and infrastructure sectors. On monetary policy, we do not expect aggressive interest rate cuts or QE; but efforts will continue to ensure financial markets remain liquid, through lending targets and RRR cuts.

China to announce more than RMB5 tn of stimulus

Key macro policy meeting delayed due to COVID-19

China's government will announce its major economic objectives and policy goals for 2020 at the annual legislative sessions starting on May 22. This meeting is often referred to as the National People's Congress (NPC). It is usually held in early March but has been delayed this year due to COVID-19. It is an important meeting, as it is where announcements are made with respect to the government's targets for growth and unemployment, supported by its spending plans – e.g. tax and spending plans for the central and local government.

Employment is primary concern for 2020

The government typically announces a range of macroeconomic targets at the NPC. Outside of China, the focus tends to be on the GDP growth target, as that is what drives trade and commodity demand. But inside of China, unemployment is what matters the most for social and political stability. This difference is magnified this year due to COVID-19.

China's GDP growth target has gradually declined since 2010. This is in line with a policy managed slowdown in China. COVID-19 has pushed China off that gradual path, giving rise to a sharp downturn. We expect the growth rate in 2020 to fall to 1.6% and rebound to 8.3% in 2021. With growth expected to be so low in 2020, the most likely outcome we think is that the government will not set a growth target for 2020.

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