Chinese government departments reported a great deal of data in recent days. Most of the reported figures were negative, reflecting China’s own slowing domestic economy as well as a poorly performing global economy. Numbers released include figures on credit, total social financing, money, and exports. China’s government is going to have to bring its A-game in order to tackle these negative indicators. However, there are signs that China’s planned fiscal and monetary policy will not be up to snuff in 2019.
First, a look at credit. In February 2019, credit rose by 880 billion yuan, and total social financing rose by 700 billion yuan, which was lower than expected. This was mainly attributed to a decline in short-term loans for residents. Residential loans rose by only 70.6 billion yuan, which marked the first negative growth since February 2016. On the other hand, corporate finance improved significantly since the beginning of the year. Corporate long-term loans increased by 512.7 billion yuan, a year-on-year increase of 145.8 billion yuan. On-balance sheet financing rose by RMB 708 billion, a decrease of RMB 275 billion compared with the same period of last year; while off-balance sheet financing declined by RMB 364.8 billion, falling by RMB 366 billion compared with the same period of last year. Entrusted and trust loans remained steady.
Second, a look at money. In February, the growth rate of M2 dropped by 0.4% to 8%, while the growth rate of M1 rose by 1.6% to 2%. Household deposits increased by 1.5 trillion yuan year-on-year, and fiscal deposits increased by 852.9 billion yuan year-on-year. At the same time, non-financial corporate deposits increased by 1.2 trillion RMB year-on-year, causing the M1 growth rate to rise significantly.
Third, a look at exports. In RMB terms, February exports were -16.6% year-on-year, imports were -0.3%, and the trade balance was 34.46 billion RMB. In January and February, exports turned sharply negative year-on-year, mainly due to ongoing weakening of overseas demand and the China-US trade war. Overseas demand continues to be weak, with the OECD lowering its global economic growth forecast for 2019 from 3.5% to 3.3%. Exports to the four major trading partners, including the US, Japan, the EU and ASEAN all contracting.
All of this negative news means that China is going to have to use strong fiscal and monetary policy in order to boost GDP growth. Unfortunately, China hasn’t slated a significant increase in its fiscal deficit, which means that the government will attempt to keep its spending in check. While this may be a good thing if the government were going to embark upon a reform policy and expand growth in the private economy, the lack of such a plan means that domestic demand is likely to remain stilted this year. Slated tax reductions will make it even more difficult for the government to carry out sufficient fiscal policy to maintain growth.
Monetary policy is supposed to remain prudent, according to Yi Gang, Governor of the People's Bank of China. The policy is to stress countercyclical adjustment. This could point to weaker monetary policy through 2019. While there have been some policy statements regarding providing funds to private enterprises, credit to the private economy remains a concern. Leverage across the non-financial corporate sector remains relatively high, weighing further on China’s credit woes.
China has numerous headwinds to economic growth this year, and the Asian nation appears underprepared to confront them. Unless internal and external demand faces a swift turnaround, China will require significant fiscal and monetary policy to combat negative indicators through 2019.
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