China and the United States are experiencing a bumpy ride in their trade relations at the moment. Against this backdrop, will China relax its fiscal and monetary policies to stabilize economic growth?
Beijing has already started to relax the fiscal policy since the Two Sessions in March. The move is aimed at offsetting the negative impact of structural reforms.
Yet it’s unlikely that China will return to the old credit-driven economic growth model because that would go against its goals of deleveraging and high-quality growth.
In the meantime, China’s macro numbers remain positive. The Purchasing Managers Index (PMI) hit 54.1 in May, the highest since December last year. A recovery in property and infrastructure investments contributed to the gain.
Companies also have stepped up their export activities to avoid getting caught in the US-China trade row in case it escalates.
However, it remains unclear whether the growth momentum will sustain.
The official PMI may not reflect the whole picture as it mainly covers state-owned enterprises as well as medium-sized and large companies.
Smaller firms typically face more challenges amid industry consolidation and a tougher credit environment.
The full article appeared in the Hong Kong Economic Journal on June 4
Translation by Julie Zhu
[Chinese version 中文版]
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