25 July 2018
China: Fiscal stimulus is tiny, expect more to come

China's State Council has unveiled a number of measures to boost growth. But don't celebrate too soon. Most of the fiscal spending has been planned and is already in the pipeline. A loosening of monetary policy is a more obvious benefit to the economy in the short-term

Fiscal stimulus is small

While the State Council has announced CNY2628 billion (USD386 billion) in fiscal stimulus, only a small portion of this is new i.e. real stimulus, rather than just planned spending. Of the CNY65 billion (USD9.6 billion) announced to foster R&D, only a fraction is new. The good news, however, is that the government wants to spend money earlier than planned.

According to our estimate, China's nominal GDP in 2018 could reach CNY86514 billion (USD12.7 trillion). That means the fiscal spending laid out by the State Council is around 3% of GDP. But spending could be higher than that if the government were to bring forward some of its infrastructure projects and other plans.

We expect more aggressive fiscal spending will be announced later if and when the trade war escalates and believe this year's stimulus could be around 4.5% GDP.

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Good MornING Asia - 25 July 2018

China's State Council has unveiled a number of measures to boost growth. But don't celebrate too soon. Most of the fiscal spending has been planned and is already in the pipeline. A loosening of monetary policy is a more obvious benefit to the economy in the short-term

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