investment viewpoints

China Fiscal Stimulus – Careful Calibration

30. luglio 2020

Nivedita Sunil

Portfolio Manager

China’s current COVID-19 stimulus plan appears to have been designed to address long-term structural improvements in a calibrated way.

China has abandoned a GDP growth target this year for the first time since 1990. Instead, an approach is underway that will tackle unemployment in a targeted manner. This offers more flexibility to calibrate policy responses in the context of financial stability as well as in response to the evolving US-China dynamic.

In response to the COVID-19 crisis, China has announced a headline fiscal stimulus package equivalent to 8.4% of GDP. The goal is to provide subsidies and tax reliefs to small and medium enterprises (SMEs) and micro firms, create savings via the reduction of social security contributions, and fund a new infrastructure push.

This fiscal response is ‘softer’ than was the case in 2009, as a much larger proportion is focused on tax reliefs and providing subsidies as opposed to almost entirely going towards investment.

Since the details of the 2020 fiscal stimulus weren’t revealed until late May, most of the fiscal impulse will likely bear fruit in the second half of this year, adding a further fillip to the growth recovery out of China, in our view. So far, the off-budget fiscal financing has been frontloaded this year, and this will support a further infrastructure investment recovery in the second half of this year.

The government views its new infrastructure plan as being instrumental in accelerating China’s transition into a more domestically-oriented, consumption-driven economy. Over the next five years, we expect new infrastructure to unlock RMB15tn in investment to support this transition.

In the initial response to COVID-19, monetary policy took the lead. However, easing momentum has slowed since May. This lends credence to our view that policymakers are acutely aware of financial imbalances and are unlikely to turn the credit spigot with the same gusto as in 2009.

With a relatively strong growth rebound from the crisis, China’s current COVID-19 stimulus plan is not a big one-off bazooka, unlike in other developed markets. The authorities seems to be using this opportunity to address long-term structural improvements in a calibrated way so that they are better positioned for the future.

Our latest whitepaper explores the full extent of China’s fiscal and monetary stimulus measures which will likely define the economy’s trajectory over the next decade.

Click here to read the full document.

Informazioni importanti.

This document has been issued by Lombard Odier Funds (Europe) S.A. a Luxembourg based public limited company (SA), having its registered office at 291, route d’Arlon, 1150 Luxembourg, authorised and regulated by the CSSF as a Management Company within the meaning of EU Directive 2009/65/EC, as amended; and within the meaning of the EU Directive 2011/61/EU on Alternative Investment Fund Managers (AIFMD). The purpose of the Management Company is the creation, promotion, administration, management and the marketing of Luxembourg and foreign UCITS, alternative investment funds ("AIFs") and other regulated funds, collective investment vehicles or other investment vehicles, as well as the offering of portfolio management and investment advisory services.

Lombard Odier Investment Managers (“LOIM”) is a trade name.

This document is provided for information purposes only and does not constitute an offer or a recommendation to purchase or sell any security or service. It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful. This material does not contain personalized recommendations or advice and is not intended to substitute any professional advice on investment in financial products. Before entering into any transaction, an investor should consider carefully the suitability of a transaction to his/her particular circumstances and, where necessary, obtain independent professional advice in respect of risks, as well as any legal, regulatory, credit, tax, and accounting consequences. This document is the property of LOIM and is addressed to its recipient exclusively for their personal use. It may not be reproduced (in whole or in part), transmitted, modified, or used for any other purpose without the prior written permission of LOIM. This material contains the opinions of LOIM, as at the date of issue.

Neither this document nor any copy thereof may be sent, taken into, or distributed in the United States of America, any of its territories or possessions or areas subject to its jurisdiction, or to or for the benefit of a United States Person. For this purpose, the term "United States Person" shall mean any citizen, national or resident of the United States of America, partnership organized or existing in any state, territory or possession of the United States of America, a corporation organized under the laws of the United States or of any state, territory or possession thereof, or any estate or trust that is subject to United States Federal income tax regardless of the source of its income.

Source of the figures: Unless otherwise stated, figures are prepared by LOIM.

Although certain information has been obtained from public sources believed to be reliable, without independent verification, we cannot guarantee its accuracy or the completeness of all information available from public sources.

Views and opinions expressed are for informational purposes only and do not constitute a recommendation by LOIM to buy, sell or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change. They should not be construed as investment advice.

No part of this material may be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorised agent of the recipient, without Lombard Odier Funds (Europe) S.A prior consent. ©2020 Lombard Odier IM. All rights reserved.