BUSINESS China's economy is likely to bounce back in Q1 and outperform expectations

BUSINESS

China's economy is likely to bounce back in Q1 and outperform expectations

By Dong Feng | People's Daily app

13:15, January 23, 2019

China has announced its economic growth rate in 2018, and analysts believe upcoming policies will help the country’s economy bounce back in the first quarter. 

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File photos and illustration: VCG

The National Bureau of Statistics on Monday announced that China’s economy was constrained by a downturn in domestic demand and trade friction. The fourth quarter saw the economic growth rate at 6.4 percent and the 2018 yearly growth rate at 6.6 percent. 

Meanwhile, China’s National Development and Reform Commission (NDRC) announced on Tuesday that it will focus on expanding the scale of bond issuance to high-quality private enterprises to promote innovation in bond varieties and encourage banks to issue medium- and long-term loans of over three years to private enterprises, especially medium- and long-term loans for advanced manufacturing.

NDRC also plans to coordinate the sale of defaulted bonds from private enterprises with good development prospects and help to bail out private enterprises.

China’s economy is transforming to high quality growth with a better foundation and enhanced high-end manufacturing, both boosting production efficiency continuously, Cheng Shi, chief economist at ICBC International, said.

A loosening monetary policy and credit policy will create strengthened synergy for economic growth.

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Shao Yu, chief economist at Shanghai-based Oriental Securities believes that additional quantitative loans will be released to targeted private businesses. 

This will provide medium- and long-term funding for small- and medium-sized enterprises (SMEs) as a short-term investment. Medium- and long-term loans could effectively support the private sector and drive the entire economy up. 

To make this idea work as planned, it is critical to set up aligned working systems in commercial banks, so there could be enough incentive to fund the investment in SMEs, Shao noted. 

In the first quarter of 2019, the year-on-year growth rate of stocks is expected to rise steadily, approaching the growth of nominal GDP, accompanied by a short and long restructuring of credit.

In terms of fiscal policy, in 2019, the amount of local bond issuance is expected to expand, pushing the growth rate of infrastructure investment in 2019 to 8 percent. The value-added tax is expected to be launched at an accelerated rate, making space for a tax reduction dividend of no less than 1.2 trillion yuan ($176.2 billion). 

In terms of monetary policy, the central bank expects to conduct a directional required reserve ratio cut or a full cut of no less than 250 basis points throughout the year. The central bank expects that the open market operating rate will be lowered in due course to guide the steady decline of interest rates in the money market. Analysts believe that China's economic policymakers will focus on steady growth and reducing risk in 2019. Economic growth is likely to bounce back in the first quarter and outperform expectations.

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