Warrington Shaw - China's Economy Needs Strong Policy Measures

Analysts at Warrington Shaw say China may need to resort to stronger policy measures to boost its economy in the face of ongoing trade tensions with the United States. It could be necessary for China to implement a broad-based stimulus package.

The People’s Bank of China recently decided to cut reserve bank requirement ratios (RRR) for the fourth time this year in an effort to alleviate worsening credit conditions and support companies and exporters that have been negatively impacted by China’s escalating trade war with the United States.

While Warrington Shaw analysts anticipate additional reserve bank ratio requirement cuts, China has stated that it will not rely on large scale stimulus to prevent the country’s economy from stalling.

Chinese businesses are still trying to reduce their levels of debt after China’s massive stimulus package to the value of $577 billion was introduced ten years ago.

Warrington Shaw analysts believe that China should ready itself to make use of stronger policy tools if the economic situation deteriorates any further and that monetary stimulus should not be ruled out as an option.

While there is still room for further reductions in the level of RRR, this is not seen by Warrington Shaw analysts as a comprehensive solution given that China’s economy is in a critical period of stabilization.

Warrington Shaw analysts say China may still be able to achieve the expansion targets set at the beginning of 2018, with credit growth at a satisfactory level to support the economy and smaller companies.