The rising optimistic mood is relaxing Chinese economists’ furrowed brows, as they believe the world’s second-largest economy will bounce back in the second half, driven by the latest policy package.
The tone of economists’ speeches has shifted recently from the feelings of anxiety expressed in October and November last year. At that time, they warned that the “faster-than-expected cooling” may hit the Chinese economy. But now, influential economists say the “worst moment” will be passed without a hard landing.
Moderately slower deleveraging, accompanied by a proactive fiscal policy, is able to prevent an economic slump, and overall growth may accelerate starting in the third quarter, a group of financial institutions’ chief economists and scholars said at a forum at Tsinghua University on March 21.
Their confidence was further consolidated when the US central bank set aside another interest rate hike for the rest of the year.
“That could be a turning point, to end the global liquidity shortage and start an easing cycle,” according to Yao Yudong, chief economist with Dacheng Fund and a former central bank official. An easing global monetary situation will benefit China, leaving more room for domestic policymakers to stabilize growth, he said.
Domestically, the country’s 2 trillion yuan ($297.5 billion) tax and fee reduction plan, at the top of the government’s task list this year, is the most aggressive move in decades. That requires great courage, while the challenges will be in line with the whole process to achieve the target, said the economists.
However, sustaining a longer recovery may require some “unconventional” measures other than the traditional monetary easing methods. Supporting private business and deepening structural reform could be a priority, said Lu Ting, chief China economist with Nomura Securities.
The property sector and infrastructure construction will continually play a significant role, in supporting economic growth, he added.
“Deleveraging should continue, but in a more moderate way. The baseline is to ensure no further risk will rise amid economic stabilization,” said Huang Yiping, deputy dean of the National School of Development at Peking University, who was a former central bank adviser.
He suggested that controlling the leverage growth rate, instead of roughly driving down the ratio, could be more efficient to tackle debt risk.
A “moderately easing” monetary policy, with a mild inflation level, can provide a sound environment for improving the debt-to-GDP ratio, said Zhou Hao, deputy head of Tsinghua University’s PBC School of Finance.
“As long as no hyperinflation happens, and no large scale quantitative easing takes place, the country’s leverage level will not worsen dramatically,” and the debt structure will be rebalanced, according to Zhou.
The “bottom” or the year’s slowest growth, may be in the second quarter, after that the rebound will start, they estimated.
In January-February, the National Bureau of Statistics indicated that industrial production growth slipped to 5.3 percent year-on-year, down from 5.7 percent in December. But fixed-asset investment growth accelerated to 6.1 percent from 5.9 percent in the last month of 2018.
The government may ramp up supportive policies in coming months, said Lu from Nomura Securities.
“We expect the People’s Bank of China to deliver a cut in the reserve requirement ratio as early as April, by 0.5 percentage point, but the onshore stock markets are a determining factor in whether this prediction materializes, as an outright stock bubble could dissuade the PBOC from a reduction.”