CHINA’S ECONOMIC PLAN IN 2019- TALKING POINTS:
- China will implement a more proactive fiscal policy in 2019, good news for the economy and the Yuan.
- China may launch more targeted easing to support private companies; yet it could drag down the Yuan.
- An omission in FX policy raises concerns on whether China will defend the Yuan at a key level.
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China revealed the top economic policies and targets in 2019 at the annual Central Economic Work Conference, which was held from December 19 to 21. Here are the highlights and how they could impact the Yuan:
MORE PROACTIVE FISCAL POLICY
The policy: China will adopt a more proactive fiscal policy in 2019. This includes larger scale of cuts in taxes and fees.
What has changed: In 2018, the fiscal deficit target was set to be 2.38 trillion yuan, with a deficit ratio of 2.6%; among all, the cuts in taxes and fees were estimated to be 1.3 trillion yuan. In 2019, the fiscal deficit ratio could be raised back to 3.0% as in 2017. The exact target will be released at the annual National People’s Congress, which is normally held in early March after the Lunar New Year.
A Review of China’s Fiscal Deficit Since 2015[2]
Impact to the Yuan: China’s economic growth rate has dropped to 6.5% in the third quarter of 2018. A more proactive fiscal policy may help to add some momentum to the economy or at least slow down the drop in the economic expansion. Therefore, it is
