It looks like looser monetary policy is on the way in China for 2020. Chinese Premier Li Keqiang said Monday the government will study further cutting bank reserve requirements in 2020. It’s a good bet that the Premier would have raised the possible policy change if the government wasn’t committed to moving in that direction.
The government will continue to pursue measures, Li announced , according to the State Council website, to lower borrowing costs for business, and especially small businesses. (Cutting the bank reserve ratio frees up capital at banks that they can then use to extend new loans.)
Why do you care? Because a good part of the end of the year financial market optimism now gripping U.S. stock markets is predicated on an end to the U.S.-China trade war and and increase in the growth rate for the Chinese economy in 2020. Last week, for example, the new head of the International Monetary Fund said in an interview that the good news in the trade war front had lead the IMF to raise its economic forecast for growth in China by 0.2 percentage points to 6% from 5.8%.
That market optimism requires that China actually delivers a step up, even if modest, in growth. These measures from Beijing are efforts to that end–but they also speak to a recognition that China’s economy faces the danger of slowing growth even with a truce in the trade war.
