An estimated RMB 2.6 trillion (or 2.5 percent of GDP) of fiscal measures or financing plans have been announced, of which 1.2 percent of GDP are already being implemented. K
increased spending on epidemic prevention and control,
production of medical equipment,
accelerated disbursement of unemployment insurance and extension to migrant workers, tax relief and waived social security contributions.
The overall fiscal expansion is expected to be significantly higher, reflecting the effect of already announced additional measures such as an increase in the ceiling for special local government bonds of 1.3 percent of GDP, improvements of the national public health emergency management system, and automatic stabilizers.
In Summary China has ...
the economy contracted by 6.8 percent (yoy) in Q1.
China’s stimulus package is substantial and similar in size to its 2008 response, which came in at about RMB 4 trillion (US$572 billion). However, China’s economy is significantly larger than it was in 2008, meaning that this stimulus package is a much smaller percentage of GDP. The US, in contrast, has already injected over US$3 trillion into its economy.
MONETARY AND MACRO-FINANCIAL
The PBC provided monetary policy support and acted to safeguard financial market stability.
liquidity injection of RMB 3.33 trillion (gross) into the banking system via open market operations (reverse repos and medium-term lending facilities).
expansion of re-lending and re-discounting facilities by RMB 1.8 trillion to support manufacturers of medical supplies and daily necessities micro-, small- and medium-sized firms and the agricultural sector at low interest rates,
reduction of the 7-day and 14-day reverse repo rates by 30 and 10 bps, respectively, as well as the 1-year medium-term lending facility (MLF) rate and targeted MLF rate by 30 and 20 bps, respectively,
targeted RRR cuts by 50-100 bps for large- and medium-sized banks that meet inclusive financing criteria which benefit smaller firms, an additional 100 bps for eligible joint-stock banks, and 100 bps for small- and medium-sized banks in April and May to support SMEs,
reduction of the interest on excess reserves from 72 to 35 bps, and (vi) policy banks’ credit extension to micro- and small enterprises (RMB 350 billion).
The government has also taken multiple steps to limit tightening in financial conditions, including measured forbearance to provide financial relief to affected households, corporates, and regions facing repayment difficulties. Key measures include (i) delay of loan payments, eased loan size restrictions for online loans, and other credit support measures for eligible SMEs and households, (ii) tolerance for higher NPLs and reduced NPL provision coverage requirements, (iii) support bond issuance by financial institutions to finance SME lending, (iv) additional financing support for corporates via increased bond issuance by corporates, (v) increased fiscal support for credit guarantees, (vi) flexibility in the implementation of the asset management reform, and (vii) easing of housing policies by local governments.
Further more the
Li announced that China would not set a GDP growth target for 2020, marking the first time the government did not set a target since records began in 1990. Before COVID-19 struck, most analysts believed that the government would set its growth target at “around six percent”.
Li announced a fiscal stimulus package of almost RMB 3.6 trillion (US$506 billion) to lead China’s economy recovery following the COVID-19 disruption. Accordingly, the government is increasing the budget fiscal deficit to an all-time high of 3.6 percent of GDP, compared to 2.8 percent in 2019.
As part of this package, the government will issue RMB 1 trillion (US$140 billion) worth of special treasury bonds and increase the local government special bond quota to RMB 3.75 trillion (US527 billion) – an RMB 1.6 trillion (US$225 billion) increase year-on-year.