China's move away from stimulus could be bad for global markets
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Chinese President Xi Jinping. Photo: Antoine Gyori/Corbis via Getty Images
China's growth so far this year has been better than expected and it will begin a shift away from stimulus and towards reform and restructuring, according to China's 25-member ruling body headed by President Xi Jinping. The news was reported by state news agency Xinhua.
Why it matters: China's stimulus has been a major source of relief for Chinese and global financial markets, and the government now looks to be shifting gears.
Background: China ratcheted up stimulus in 2018, including tax and fee cuts amounting to nearly $300 billion, and 5 separate cuts to banks' reserve requirement ratios to spur lending.
- Economists, including IMF Managing Director Christine Lagarde, as well as buy- and sell-side analysts had largely credited this stimulus with righting China's economy. (And as a potential savior for Europe's wilting growth.)
What it means: The statement from the politburo came days after China reported better-than-expected 6.4% annual growth in Q1, defying expectations of a slowing economy.
- The meeting statement removed the so-called six stabilizations from policy objectives: employment, finance, trade, foreign investment, investment and expectations.
- Analysts at Goldman Sachs said in a research note that the politburo's findings signaled a "less dovish policy stance."
Yes, but: Morgan Stanley analysts point out that while acknowledging growth improvement in Q1, "policymakers remain cautious in light of still rising external pressures and downward pressures on growth."
The bottom line:
- "The stimulus will be weak and the reform will be strong," Liang Zhonghua, chief macro analyst at the Research Institute of Zhongtai Securities, told the South China Morning Post. Liang said senior leaders sent a signal that economic growth was no longer policymakers' top goal.
