Snapshot - Managers' views
China cuts growth target, but no signs of mega stimulus
Quickview: China lowers its 2019 growth target to 6-6.5%, but so far no signs of mega stimulus from National People’s Congress.
- China to target economic growth of 6-6.5% this year
- National People’s Congress so far shows no signs of mega stimulus announcement
- We continue to forecast a modest deceleration in GDP growth, accompanied by higher volatility in underlying activity
There were no signs of a mega stimulus to come out of China from the start of the annual National People’s Congress in Beijing. Growth expectations have been lowered, as anticipated, and targets for fiscal and credit support are modest at best. The fiscal deficit is barely rising, and policymakers are aiming for “basically stable” debt-to-GDP this year.
New growth and fiscal targets
A new growth target of 6 to 6.5% signals that policy levers will be used to keep growth above 6% this year. We remain happy with our recently revised forecast for 6.3% growth in 2019, though we suspect underlying activity may prove more volatile. From the other announced targets, it also seems that the government is, for now at least, behaving in line with our expectations for more fiscal support from the centre, rather than relying on local governments and credit growth.
More central fiscal support but stimulus comparatively modest
Local government bond quotas have been increased; by RMB 100 billion for general purpose bonds and RMB 800 billion for special purpose bonds, which finance infrastructure. On the face of it, this is a substantial increase in infrastructure financing. However, to an extent this reflects the reduction in shadow financing which had historically been a key part of the infrastructure story. To put things into perspective, the increase in local government bond issuance looks set to lift overall credit growth by just 0.4 percentage points this year.
Less commodity intensive stimulus
For now, announcements have been largely in line with our assumptions and so do not materially alter our forecast. We continue to expect a modest slowdown in growth, a smaller stimulus package than in previous slowdown phases and, perhaps crucially for the rest of the world, a stimulus package which is less commodity intensive than we are accustomed to seeing from China.
Any security(s) mentioned above is for illustrative purpose only, not a recommendation to invest or divest.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The views and opinions contained herein are those of the author(s), and do not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. The material is not intended to provide, and should not be relied on for investment advice or recommendation. Opinions stated are matters of judgment, which may change. Information herein is believed to be reliable, but Schroder Investment Management (Hong Kong) Limited does not warrant its completeness or accuracy.
Investment involves risks. Past performance and any forecasts are not necessarily a guide to future or likely performance. You should remember that the value of investments can go down as well as up and is not guaranteed. Exchange rate changes may cause the value of the overseas investments to rise or fall. For risks associated with investment in securities in emerging and less developed markets, please refer to the relevant offering document.
The information contained in this document is provided for information purpose only and does not constitute any solicitation and offering of investment products. Potential investors should be aware that such investments involve market risk and should be regarded as long-term investments.
Derivatives carry a high degree of risk and should only be considered by sophisticated investors.
This material, including the website, has not been reviewed by the SFC. Issued by Schroder Investment Management (Hong Kong) Limited.