Beijing’s main defense against trade-war fallout this year is more likely to come from the finance ministry than the central bank, no matter what President Donald Trump says.
If tariffs begin to really hurt China’s growth this year, there’s plenty of direct fiscal firepower left to stoke the economy before the People’s Bank of China would have to cut interest rates, according to an analysis of government spending by Bloomberg. Data released Wednesday showed an across-the-board slowdown in April.
Central and local authorities in China have at least 25.1 trillion yuan ($3.65 trillion) unspent in their budgets this year, data compiled using official budget plans show. That’s two trillion yuan more than the ammunition China had in the same period last year — and about equivalent to the entire annual output of Germany.
“Chinese leaders will be able to better utilize different kinds of policy tools than their U.S. counterparts if the trade war persists, and that’s where China’s confidence comes from,” said Serena Zhou, an economist at Mizuho Securities Asia Ltd in Hong Kong. “From monetary policy and fiscal policy to the dominant role of the state-owned enterprises, China’s control on the economy is obviously stronger than the U.S.,” she said
Indeed, PBOC Governor Yi Gang has spent the last year saying he wants to avoid a “flood” of stimulus, pushing back against expectations of benchmark interest-rate cuts as he seeks to curb market bubbles and keep a lid on debt growth.
That said, economists from Morgan Stanley and China International Capital Corporation to Macquarie Securities expect further cuts to the proportion of deposits banks are forced to lock away, as authorities look to keep the credit taps flowing.