China said it will “fully prepare” emergency plans to ward against increasing external shocks, taking a patient approach in defending growth as a deepening trade war with Donald Trump piles pressure on the world’s No. 2 economy.
The decision-making Politburo led by President Xi Jinping also pledged Friday to set up new monetary tools and policy financing instruments to boost technology, consumption and trade, according to a readout published on the government’s website. Such steps could allow for faster deployment of low-cost credit for investment in targeted areas.
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“We must keep improving the policy toolbox to stabilize employment and the economy, and launch measures already planned at an earlier date,” top leaders said, according to the readout. They also promised to “go all out to consolidate the fundamentals of economic development and social stability.”
Beijing is signaling it’s in no rush to be aggressive in expanding economic stimulus just a month after unveiling measures including a commitment to run a record-high budget deficit. China’s stronger-than-expected growth in the first quarter bought more time for the government to consider new steps.
“The stimulus hope is still alive,” said Zhaopeng Xing, senior strategist at Australia & New Zealand Banking Group. “But the leaders clearly adopt a wait-and-see approach.”
Policymakers reiterated China should free more cash for banks “when needed,” and carefully “pick the timing” for rate cuts.
Futures on 30-year government bonds jumped the most since April 9 after the Politburo’s comments on timely rate and reserve requirement ratio cuts. The yield for 10-year notes stayed little changed and the offshore yuan was flat. China’s onshore stock benchmark CSI 300 Index closed 0.1% higher after an advance of as much as 0.5%.
What Bloomberg Economics Says...
“China’s Politburo on Friday sent a calmer message than the market expected — yes, emergency trade-war plans are being prepared to support the economy, but no, it’s not an all-in moment. The meeting readout suggests the focus remains on executing the stimulus plan approved in early March — with faster delivery — and sticking to medium and long-term reform plans.”
— Eric Zhu and David Qu. For full analysis, click here
Beijing has typically dispensed support only when warranted to protect the nation’s annual growth goal. While expansion in the first quarter came in above the government’s target of about 5% for this year, more stimulus is still needed since the economy could lose momentum significantly from April, when Trump’s punitive reciprocal tariffs kicked in.
The authorities may inject more economic aid when they get a clearer view of the prospects for trade negotiations with the US, with the next huddle of the Politburo in three months’ time a window to watch, according to Jacqueline Rong, chief China economist at BNP Paribas.
“Policymakers will likely wait until the July Politburo meeting to unveil new stimulus,” she said. “By then, two things will become clearer: how trade talks with the US will go and how the economy is faring with most of the policies approved at the Two Sessions having been rolled out,” she said, referring to the annual legislative session.
China’s leadership took stock of the economy one day after Beijing dismissed claims from the US that there were talks on reaching a trade deal. China’s Commerce Ministry also re-upped its demand this week for Washington to revoke all unilateral tariffs, showing it’s in no rush to start negotiations despite Trump’s suggestion he could substantially lower levies in a deal.
Foreign Ministry spokesman Guo Jiakun reiterated on Friday that “China and the US are not having any consultation or negotiation on tariffs.” Speaking at a daily press briefing, he said “the US should not mislead the public.”
Despite the hard-line rhetoric, Beijing is quietly considering suspending its 125% retaliatory tariffs on some US imports, a move that will contain the fallout of the trade war on certain sectors. The pullback, mirroring similar moves on the part of Washington, reflects the extent to which the world’s two biggest economies have become intertwined, with some key industries at risk of grinding to a halt after tensions escalated.
Some of the pledges from the Politburo readout have been previously floated by senior officials, such as a “sci-tech board” in the bond market and relending facilities for elderly care, as well as boosting service consumption. The meeting appears to be giving the tasks greater urgency after Trump hiked levies on most Chinese goods to as high as 145%.
The authorities also reiterated they will forcefully push forward a program to renovate urban villages and run-down homes while streamlining policies for local governments to buy unsold homes.
The measures are part of efforts to halt a years-long property slump by driving additional home-buying demand and easing the liquidity crunch experienced by many developers.
“Chinese policymakers want to show preparedness for a prolonged trade conflicts and to give markets some confidence,” said Woei Chen Ho, an economist at United Overseas Bank Ltd. “The big picture is still on how to promote domestic demand and stabilize the property market.”
The 24-member Politburo typically uses its huddles in April, July and December to discuss economic issues. While the readouts rarely reveal numerical targets, the vaguely worded statements can give important clues on policy shifts. This month’s meeting is being closely watched for any signs of Beijing rolling out stimulus.
“We must strengthen the bottom-line thinking and fully prepare contingency plans to concrete do well the economic work,” top leader said in the meeting readout, adding that more work needed to be done to allow the economy to keep recovering.
--With assistance from Wenjin Lv, Lianting Tu, Dan Murtaugh, Emma Dong and Lucille Liu.
