China: A Possible March Bottoming

Published on April 15, 2019

China’s National Bureau of Statistics is scheduled to release major economic data for Q1, including March, followed by a press conference this Wednesday, April 17.

In advance of the NBS release, as is typical, nine economic departments submitted their individual analysis reports for Q1 to the Central Financial and Economic Affairs Commission and State Council on April 8.

** All nine departments concluded that Q1 2019 will register the lowest GDP growth rate in three decades, as had been expected going into the end of 2018, but that the March economic indicators confirm, as also expected, signs of bottoming out from the lowest levels of January and February (see SGH 12/24/18, “China: CEWC and Leadership’s 2019 Targets”).

** There is, from what we understand, some variance between the nine departments:

** On the most bullish side three departments, the Ministry of Commerce, Ministry of Agriculture, and Ministry of Industry and Information Technology (MIIT) registered a GDP growth rate of 6.4% for Q1.

** Five, the majority of departments, including the Ministry of Finance, the National Development and Reform Commission, and the People’s Bank of China, saw Q1 GDP rising by 6.3%, year on year, with one department, the Ministry of Housing and Urban-Rural Development, bringing up the low end at 6.2%.

** Economic officials expressed confidence that economic growth will stabilize in Q2 of 2019, and perhaps even drift upwards through the second half of 2019. They were pleased to see the IMF revise upwards its forecast for Chinese growth this year from 6.2% to 6.3%, even as it downgraded its global forecast from 3.5% to 3.3% for 2019.

** The early signs of stabilization, expected in Beijing, and now acknowledged by markets and the typically lagging IMF, reflect the combined impact of China’s stronger than expected expansionary fiscal policy, upped from the initially planned 1.2 trillion to 2 trillion Yuan, enhanced market confidence, reasonable income and employment numbers, and the more positive developments in US/China trade talks — all offset to some extent by a slowing global economy.

** To ensure the modest recovery stays on track, the policy focus from Beijing will remain targeted on proactive fiscal policy, while maintaining liquidity at “reasonably ample” levels through 2019. In practice, this explains why, with ample liquidity already in the system, the PBoC has refrained from adding liquidity through reverse repos for 15 consecutive work days.

** Chinese officials note a prudent, “neither too tight nor too loose,” monetary policy also rules out the universal RRR (Reserve Requirement Ratio) cuts of old that would fire up equity markets, but it does leave the door open to a targeted reduction in the RRR, directed as in the recent past towards smaller businesses, or lower Open Market Operation (OMO) rates, if needed perhaps as soon as this month, April.

Back to list