China Macro Outlook

China Macro Outlook

Path towards policy normalisation amidst ongoing pandemic risks February 2021

PUBLIC

ICBC Standard Bank |

PU

BLIC

Contents

China Macro Insights

Strong 2020 GDP growth justifies room for gradual policy normalisation 4

China remains on course to lead global recovery in 2021 and beyond 5

Most economies are expected to recover from the severe pandemic shock 6

Solid growth recovery in Q4 exceeded the pre-pandemic output level 7

But consumption remained as a growth laggard throughout 2020 8

Strong supply-side recovery started to show early signs of plateauing 9

Property and infrastructure-led investment rebound is slowing down 10

Exports benefited from unexpected demand for pandemic-related goods 11

Consumption faces fresh lockdown pressure despite notable Q4 rebound 12

Inflation divergence reflects weaker recovery momentum in consumption 13

PBoC may gradually shift away from its highly accommodative credit policy 14

…with extra caution against risks of re-inflating asset bubbles 15

Ultra-proactive fiscal policy is likely to be normalised at the NPC meeting 16

2

China Macro Outlook


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Contents

Market Implications

Front-end interbank rates saw heightened volatility in Jan-2021… 17

…leading to notable movements of CGB yields across different tenors 18

But PBoC is determined to hold policy rates and absorb excessive liquidity 19

PBoC balance sheet expansion is very timid compared to peers… 20

… while rate differentials between China and US remain significant 21

Dollar weakness and macro-recovery continue to support the yuan 22

Yuan’s two-way fluctuation and balanced capital flows to be key focuses 23

Appendix

Appendix I: Market awaits further policy clarity at the March NPC meeting

Key economic targets in the past Government Work Reports (2018 – 2020)

24

Appendix II (a): Phase-One deal remains incomplete 25

Appendix II (b): Shortfall of the Phase One deal might be too big to ignore 26

Appendix III: “Six guarantees” have been Beijing’s top policy priorities in 2020 27

Appendix IV: China’s COVID-19 emergency relief policy package (Feb-Mar) 28

3

China Macro Outlook


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Strong 2020 GDP growth justifies room for gradual policy normalisation

4

China Macro Outlook

● After a challenging Q1, China ended 2020 on a high note: with 2.3% annual growth and 6.5% growth yoy in

Q4, exceeding consensus and recovering beyond pre-pandemic output levels.

● Lifting China’s GDP beyond the CNY 100tn threshold during a pandemic is indeed a significant milestone

for Beijing. That said, the so-called ‘V-shaped’ recovery so-far is heavily reliant on investment and

unexpected resilience in exports.

● Private consumption in itself remained a growth laggard throughout 2020, and it is now facing renewed

challenges from sporadic Covid-clusters and local lockdowns. New measures to further unleash domestic

consumption are expected to be outlined during March meetings.

● That said, the robust 2020 performance still justifies room for gradual policy normalisation in 2021 –

especially fiscal policy – to continue economic rebalancing towards private consumption-based growth.

● Recent shift in PBoC’s monetary stance towards risk prevention against re-inflating asset bubbles, curbing

excessive short-term borrowing, has already put banks and property developers under tighter regulatory

scrutiny. This has also triggered an unexpected episode of interbank liquidity squeeze in January. Given

this context, we think the central bank is unlikely to seek an immediate exit from the highly

accommodative credit policy in the near term.

● On the other hand, the yuan is on course to receive further support from macro fundamentals including

replenishing trade surplus, commitment to gradual policy normalisation, a low interest rate environment

and sufficient yield differentials between US and China. PBoC appears to prefer more two-way volatility.

● In a nutshell, with China’s recovery still facing lingering threats from the global pandemic, 2021 macro

policy tone is likely to remain flexible and data dependent – with emphasis on “stability”. Policy

normalisation is likely to be rolled out at a gradual and managed pace, especially as precautionary policy

buffers are needed in the event of domestic or external uncertainties that may hinder 'dual circulation’.


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China remains on course to lead global recovery in 2021 and beyond

5

China Macro Outlook

IMF World Economic Outlook Growth Projections (Jan 2021 WEO Update)

Source: IMF, ICBC Standard

-4.9%

5.5%

4.2%

-8.0%

4.3%

3.1%

-3.0%

6.3%

5.0%

1.9%

8.1%

5.6%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2020 2021 2022

Global Economy Advanced Economies Emerging Markets & Developing Economies China


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Most economies are expected to recover from the severe pandemic shock

6

China Macro Outlook

Growth outlook of key economies

Source: IMF (WEO Jan 2021), ICBC Standard

2020 2021 2022

Advanced Economies -4.9 4.3 3.1

US -3.4 5.1 2.5

Euro Area -7.2 4.2 3.6

Germany -5.4 3.5 3.1

France -9.0 5.5 4.1

Italy -9.2 3.0 3.6

Spain -11.1 5.9 4.7

UK -10.0 4.5 5.0

Japan -5.1 3.1 2.4

Canada -5.5 3.6 4.1

Emerging Markets and Developing Economies -2.4 6.3 5.0

China 2.3 8.1 5.6

India -8.0 11.5 6.8

Russia -3.6 3.0 3.9

Brazil -4.5 3.6 2.6

South Africa -7.5 2.8 1.4

Nigeria -3.2 1.5 2.5

Saudi Arabia -3.9 2.6 4.0


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-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

20

17

-Dec

20

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-Sep

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-Dec

FAI (3m mov. Avg.) Retail Sales (3m mov. Avg.)

IP (3m mov. Avg.) Quarterly GDP Growth (yoy %, RHS)

6.9% 6.9% 6.7% 6.5% 6.4% 6.2% 6.0% 6.0%

-6.8%

3.2%

4.9%

6.5%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Net Exports Investment

Contribution to real GDP Growth % Consumption Quarterly GDP Growth ( yoy %, constant price)

Solid growth recovery in Q4 exceeded the pre-pandemic output level

7

China Macro Outlook

China’s economy expanded by 6.5% yoy in Q4 vs. 4.9.% in Q3

Source: WIND, ICBC Standard

But the recovery was unbalanced and heavily relied on public support



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8.0%

-20.5%

-19.0%

-16.2%

-13.5%

-11.4%

-9.9% -8.6%

-7.2% -5.9%

-4.8% -3.9%

6.1%

-6.8%

-1.6%

0.7% 2.3%

-6.8%

3.2%

4.9% 6.5%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

Jan - Dec2019

Jan - Feb2020

Jan - Mar2020

Jan - Apr2020

Jan - May2020

Jan - Jun2020

Jan - Jul2020

Jan - Aug2020

Jan - Sep2020

Jan - Oct2020

Jan - Nov2020

Jan - Dec2020

Retail Sales (YTD yoy) Fixed Asset Investment (YTD yoy) Industrial Production (YTD yoy) GDP (YTD yoy) Quarterly GDP (yoy)

But consumption remained as a growth laggard throughout 2020

8

China Macro Outlook

Retail sales failed to catch up with supply-side recovery in 2020 and is facing renewed lockdown challenges to reverse the declining trend



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-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Industrial Production (yoy %) IP - Manufacturing

IP - SOEs IP - Private Enterprises

Strong supply-side recovery started to show early signs of plateauing

9

China Macro Outlook

PMI began to moderate from post-lockdown high towards year-end


Manufacturing and private firms led the supply-side recovery


35

40

45

50

55

60

35

40

45

50

55

60

Official Manufacturing PMI Caixin Manufacturing PMI


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-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20

19

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20

19

-Oct

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FAI YTD (yoy %) FAI - Real Estate FAI - Manufacturing FAI - Infrastructure

Property and infrastructure-led investment rebound is slowing down

10

China Macro Outlook

YTD FAI resumed positive growth in September but the rebound was primarily led by real estate and infrastructure investment



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-40%

-30%

-20%

-10%

0%

10%

20%

(yoy %, YTD)

US EU ASEAN Africa LATAM

-40%

-20%

0%

20%

40%

60%

80%

100%

-40

-20

0

20

40

60

80

100

Current Account (USD bn, LHS) Exports (% yoy)

Imports (% yoy)

Exports benefited from unexpected demand for pandemic-related goods

China Macro Outlook

11

Q4 trade growth was gained by taking a greater share of global

exports, which also boosted current account surplus to record highs


Notable pick up in exports to US further aided exports rebound in Q4

led by ASEAN and the EU in (YTD exports, yoy %)



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Consumption faces fresh lockdown pressure despite notable Q4 rebound

12

China Macro Outlook

Monthly growth momentum in retail sales began to gather pace

since Sep. led by pick-up in auto sales and consumer goods


But e-Commerce has been indispensable in driving the recovery of

retail sales as other segments all remained negative in YTD terms


-50%

-40%

-30%

-20%

-10%

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20

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-No

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20

-De

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Retail Sales - Restaurants Retail Sales - Goods

Retail Sales - Cars Retail Sales (yoy %)

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

Retail Sales YTD (yoy %) Retail Sales - Goods

Retail Sales - Restaurants Retail Sales - Online sales

Retail Sales - Auto


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-15%

-10%

-5%

0%

5%

10%

15%

-10%

-5%

0%

5%

10%

15%

20

18

-Ja

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20

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-Oct

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-Oct

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-Ja

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PPI Consumer Durable Goods

Manufactured Industrial Input Raw Materials

Inflation divergence reflects weaker recovery momentum in consumption

13

China Macro Outlook

Core CPI remained below 1.0% in Q4 and further dipped into

deflation territory due to high base effect


Factory deflationary pressure finally reversed the trend in Jan 2021

supported by rising commodity prices


-2%

-1%

0%

1%

2%

3%

4%

5%

6%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

Headline CPI Core CPI (excl food & energy) Non-food CPI


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0%

5%

10%

15%

20%

25%

30%

35%

-

1,000

2,000

3,000

4,000

5,000

6,000

20

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New Loan (CNY bn) Total Social Financing (CNY bn)

M2 (yoy %)

PBoC may gradually shift away from its highly accommodative credit policy

14

China Macro Outlook

Q2-Q3 2020 saw the highest pace of credit expansion since GFC

with considerable growth of bank lending and total social financing


Double-digit growth in broad social credit since March began to

show signs of moderation towards year-end


11.1%

10.1%

13.7%

13.3% 13.2%

12.8%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20

16

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M2 yoy % Total Social Financing yoy %

Core Bank Lending yoy %


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-2

-1

0

1

2

3

4

-10%

-5%

0%

5%

10%

15%

20%

Financial Condition Index (RHS) GDP Growth (yoy %, LHS) M2 Growth (yoy %, LHS) Total Social Financing (yoy %, LHS)

…with extra caution against risks of re-inflating asset bubbles

15

China Macro Outlook

Looser Financial

Conditions

Deleveraging Cycle

Financial conditions marginally tightened since June as regulatory tone shifted towards curtailing speculative investments


Note: Negative reading of Caixin Financial Condition Index reflects loose financial condition, and positive reading means tighter financial condition in the onshore China market.


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Ultra-proactive fiscal policy is likely to be normalised at the NPC meeting

16

China Macro Outlook

Over CNY 4.5tn of local government bonds new issuance in 2020 dwarfs records in the past ten years


Note: * NPC meeting in May has approved CNY 3.75tn worth of special purpose bond quota for 2020. By the end of H1 2020, more than CNY 2.37tn worth of special purpose bond have

already been issued, accounting for nearly 65% of the annual quota.

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(CNY bn)

General Local Government Bond Special Purpose Bond

CNY 4.5tn new local government bond

issuance in 2020 marks 1.5 times of

the CNY 3.0tn record in 2019


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2.20%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

20

10

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11

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Overnight SHIBOR rate (%) 7-day Reverse Repo rate (%)

Front-end interbank rates saw heightened volatility in Jan-2021…

17

China Macro Outlook

Overnight and 7-day rates went through volatile movements in Jan, but PBoC remained determined to hold 7-day OMO rates unchanged



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…leading to notable movements of CGB yields across different tenors

18

China Macro Outlook

Yield of 1yr CGB notably bounced back in Jan 2021 due to front-end

liquidity squeeze in the interbank system


Yet CGB yields are likely to remain range bound in the near term as

markets await further policy clarities after the Chinese New Year

Source: Bloomberg, ICBC Standard

0

20

40

60

80

100

120

5yr-10yr CGB spread (bps) 3yr-10yr CGB spread (bps)

1yr CGB, 2021-01-13,

2.16%

1yr CGB 2.66%

3yr CGB 2.88%

5yr CGB 3.08%

10yr CGB 3.22%

2.0%

2.2%

2.4%

2.6%

2.8%

3.0%

3.2%

3.4%

2020-Nov-01 2020-Dec-01 2021-Jan-01 2021-Feb-01

1yr CGB YTM 3yr CGB YTM 5yr CGB YTM 10yr CGB YTM


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2.95%

3.85%

4.65%

1.50%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

20

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MLF (1-yr, %) 1-yr LPR 5-yr LPR 1-yr benchmark deposit rate

But PBoC is determined to hold policy rates and absorb excessive liquidity

19

China Macro Outlook

Longer-term benchmark rates remain unchanged since last May and are likely to remain so for longer as near-term rate hike highly unlikely



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PBoC balance sheet expansion is very timid compared to peers…

20

China Macro Outlook

Balance sheet growth of major central banks (monthly, USD tn)


2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

20

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(USD tn) (USD tn)

Bank of Japan Federal Reserve European Central Bank PBoC


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… while rate differentials between China and US remain significant

21

China Macro Outlook

Yield spread between China-US 10yr government bond remains at above 200bps


6.0

6.2

6.4

6.6

6.8

7.0

7.2

7.4

0

50

100

150

200

250

300

2014-Jan 2015-Jan 2016-Jan 2017-Jan 2018-Jan 2019-Jan 2020-Jan 2021-Jan

China-US 10yr Yield Spread (RHS) USD-CNY Spot Rate (LHS)


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87

89

91

93

95

97

99

101

103

105

6.2

6.4

6.6

6.8

7.0

7.2

7.4

USDCNY (LHS) USDCNH (LHS) Dollar Index (RHS)

-0.1

0.0

0.1

0.2

0.3

0.4

0.5

0.6

6.0

6.1

6.2

6.3

6.4

6.5

6.6

6.7

6.8

6.9

7.0

7.1

7.2

7.3

7.4

CNH-CNY Spread (RHS) USDCNY USDCNH

Dollar weakness and macro-recovery continue to support the yuan

22

China Macro Outlook

Yuan has appreciated by more than 8% against USD in H2-2020


Persistent dollar weakness supported extended yuan rally

Source: Bloomberg, ICBC Standard


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6.0

6.1

6.2

6.3

6.4

6.5

6.6

6.7

6.8

6.9

7.0

7.1

7.2

7.3

6.0

6.1

6.2

6.3

6.4

6.5

6.6

6.7

6.8

6.9

7.0

7.1

7.2

7.3

USDCNY USDCNH

Yuan’s two-way fluctuation and balanced capital flows to be key focuses

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China Macro Outlook

Recent yuan rally may have limited strength to break record lows


PBoC markedly reduced dollar weighting in the CFETS RMB Index

Top 15 basket currencies in the CFETS RMB Index

Source: CFETS, ICBC Standard

Currency

New Weighting

(Jan 2021 -

present)

Old Weighting

(Jan 2020 -Dec

2020)

Old Weighting

(Jan 2017 - Dec

2019)

Weighting

Change

(Present vs

2020)

USD 18.79% 21.59% 22.40% ↓ -2.80%

EUR 18.15% 17.40% 16.34% ↑ 0.75%

JPY 10.93% 11.16% 11.53% ↓ -0.23%

KRW 9.88% 10.68% 10.77% ↓ -0.80%

AUD 5.89% 5.20% 4.40% ↑ 0.69%

MYR 4.31% 3.70% 3.75% ↑ 0.61%

RUB 3.85% 3.65% 2.63% ↑ 0.20%

HKD 3.59% 3.57% 4.28% ↑ 0.02%

THB 3.19% 2.98% 2.91% ↑ 0.21%

SGD 3.12% 2.82% 3.21% ↑ 0.30%

GBP 3.00% 2.75% 3.16% ↑ 0.25%

SAR 2.71% 2.16% 1.99% ↑ 0.55%

CAD 2.26% 2.17% 2.15% ↑ 0.09%

MXN 2.11% 1.98% 1.69% ↑ 0.13%

AED 1.69% 1.57% 1.87% ↑ 0.12%


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Appendix I: Market awaits further policy clarity at the March NPC meeting

Key economic targets in the past Government Work Reports (2018 – 2020)

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China Macro Outlook

2020 2019 2018

GDP

GDP Target (%) “Endeavour to achieve the 13th FYP target” 6.0% - 6.5% 6.50%

Actual GDP (CNY bn) -- 99,086.50 91,928.11

Previous GDP growth rate (yoy %) 6.10% 6.70% 6.90%

Fiscal

Official Fiscal Deficit (CNY bn) 3,760 ↑ 2,760 2,380

Official Fiscal Deficit Ratio (% GDP) > 3.6% ↑ 2.8% 2.6%

Special Bond Quota (CNY bn) 3,750 ↑ 2,150 1,350

Special Bond Quota (% GDP) 3.75% ↑ 2.18% 1.47%

Special Sovereign Bond (CNY bn) 1,000 ↑ NA NA

Broad Fiscal Deficit Ratio (% GDP) > 8.5% ↑ 5.0% 4.1%

Railway Infra-Investment (CNY bn) 900 ↑ 800 732

Road and Water Transport Infra-

Investment (CNY bn) NA - 1,800 1,800

Tax Cuts (CNY bn) 2,500 ↑ 2,000 1,100

Social

Household Disposable Income Growth

(yoy %) "Same as nominal GDP

growth rate" =

"Same as nominal

GDP growth rate" 6.5%

Urban New Job Creation (mn) 9.0 ↓ 11.0 11.0

Unemployment Rate (%) 6.0% ↑ 5.5% 5.5%

Poverty Reduction (mn) 10 estimated

(“Eliminate extreme poverty”) = 10 10

Monetary

CPI (%) 3.5% ↑ 3.0% 3.0%

New Loan Growth for SMEs (%) > 40% ↑ 30% --

M2 (yoy %) “Markedly higher than

2019” ↑

"Same as nominal

GDP growth rate" "Reasonabl

e growth" Total Social Financing (yoy %)



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Appendix II (a): Phase-One deal remains incomplete

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China Macro Outlook

China has accelerated manufactured goods purchasing from the US since May, but the actual Phase-One purchase of goods across

agricultural, manufactured and energy sectors all missed the targets by the end of 2020.

Source: PIIE, ICBC Standard

0.4 0.9

4.0 4.5

16.7

4.8 3.9 4.2

10.6 9.8

8.7

21.6

17.5

18.9

9.1

0

5

10

15

20

25

2017

(Quarterly avg)

2018

(Quarterly avg)

2019

(Quarterly avg)

2020 Q1

(Acutal)

2020 Q2

(Actual)

2020 Q3

(Actual)

2020 Q4

(Actual)

Outstanding

Commitment

(USD bn)

Energy goods Agricultural Goods Manufactured Goods


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Purchase Commitments

Actual Purchases


Actual Purchases


Actual Purchases

Appendix II (b): Shortfall of the Phase One deal might be too big to ignore

China Macro Outlook

26

By the end of 2020, China has purchase $100bn worth of goods from US, yet still only accounted for less than 60% of the Phase One target

Source: PIIE, ICBC Standard

Actual Purchases

100.0


169.5

0

30

60

90

120

150

180

2020 Jan 2020 Feb 2020 Mar 2020 Apr 2020 May 2020 Jun 2020 Jul 2020 Aug 2020 Sep 2020 Oct 2020 Nov 2020 Dec

(USD bn)

66.7

110.8

0

20

40

60

80

100

120

20

20

Ja

n

20

20

Fe

b

20

20

Ma

r

20

20

Ap

r

20

20

Ma

y

20

20

Ju

n

20

20

Ju

l

20

20

Au

g

20

20

Se

p

20

20

Oct

20

20

No

v

20

20

De

c

Manufactured Goods

19.4

33.4

0

10

20

30

40

20

20

Ja

n

20

20

Fe

b

20

20

Ma

r

20

20

Ap

r

20

20

Ma

y

20

20

Ju

n

20

20

Ju

l

20

20

Au

g

20

20

Se

p

20

20

Oct

20

20

No

v

20

20

De

c($bn) Agriculture

9.8

25.3

0

5

10

15

20

25

30

20

20

Ja

n

20

20

Fe

b

20

20

Ma

r

20

20

Ap

r

20

20

Ma

y

20

20

Ju

n

20

20

Ju

l

20

20

Au

g

20

20

Se

p

20

20

Oct

20

20

No

v

20

20

De

c

Energy


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Appendix III: “Six guarantees” have been Beijing’s top policy priorities in 2020

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China Macro Outlook

Timeline Policy Measures since end-March (see Appendix for previous measures) Fiscal

Policy

Monetary

Policy

Mar.27

(Politburo

meeting)

A key Politburo meeting marked Beijing proposal to increase its fiscal deficit to 3.5% as a share of GDP (from a

de-facto 3% ceiling), issue special sovereign debt and allow local governments to sell more infrastructure bonds as

part of a package to stabilise the economy. The ramped-up spending on infrastructure investment could be backed

by as much as CNY 2.5-2.8 trillion worth of local government special bonds. Beijing is also likely to have to lower

its economic growth target for 2020, down from the original target of around 6% agreed in December 2019.

Y

Mar.30 The PBOC reduces the interest rate on 7-day reverse repurchase agreements to 2.2% from 2.4% while injecting CNY

50 billion into the banking system. The rate cut was the largest of its sort since 2015. Y

Mar. 31

The State Council called for lower reserve-requirement ratios for smaller banks, more infrastructure bond issuances

by local governments, and other steps including tax exemptions on new-energy vehicle purchases. A State Council

meeting pledged another 1 trillion CNY of funding through the central bank’s relending and rediscounting

program, a cheaper credit line for small commercial lenders.

Y Y

Apr. 3

(Politburo

meeting)

Politburo leaders in a statement pledged a raft of measures to strengthen the role of the market in land use,

capital markets and labour mobility to build a more efficient economy. The Politburo also called for improvements

to the country’s stock market infrastructure, faster development of the bond market and actively expanding

financial-sector opening., and interest rates reform.

Y

PBoC announced cut of targeted Reserve Ratio Requirement (RRR) for smaller banks by 1.0 percentage points in

two phases. The targeted RRR cut will release around CNY 400 billion into the banking system. Y

Apr. 17

(Politburo

meeting)

The Politburo for the first time put forward the goal of "six guarantees (六保)”, which includes ensuring residents’

employment, a basic livelihood and market participation, food and energy security, supply chain stability, and

grassroots operations. ‘Full-employment and undisrupted functioning of social fabrics‘ as well as ‘people’s

livelihoods‘ have been identified as top priority by the government.

Y

Apr. 17-20

PBoC cut MLF rate by 20bps to 2.95% from 3.15%, the lowest since 2017, and injected CNY 100bn via 7-day repo.

The one-year LPR was subsequently lowered to 3.85% from 4.05%, and the five-year tenor dropped by 10bps to

4.65% down from 4.75%.

Y

Apr. 20

MoF approved another CNY 1tn quota for special purpose bonds to be placed by end-May. NDRC outlined the five-

year “New Infrastructure investment plan” worth CNY 10tn from 2020. 24 provinces have submitted CNY 8tn

worth of infrastructure investment projects for 2020 so far (see next slide).

Y

Apr. 21 State Council lowered the bad-loan coverage ratio for medium-small sized banks by 20 bps in phases, to unleash

additional credit to support small and micro-sized businesses. Y



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Appendix IV: China’s COVID-19 emergency relief policy package (Feb-Mar)

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China Macro Outlook

Timeline Policy Measures Fiscal

Policy

Monetary

Policy Feb. 1 Import tariffs exemption for medical materials used in epidemic control until March 31.

Y

PBoC strengthened countercyclical adjustments of monetary policy through open market operations. Together with

other financial regulators, the PBoC rolled out 30 policy measures to support enterprises. Y

Feb. 3-4 PBoC added a net CNY 150bn liquidity to the interbank market. The total injection announced was CNY 1.6tn, the

largest single-day addition of its kind since 2004. Y

Feb. 5 State Council announced support for debt financing and insurance for virus-impacted firms, and allowed local

government to sell another CNY 848bn of bonds before March. Y

Feb. 6 PBoC issued credit support for enterprises heavily affected by the epidemic (small and micro companies and key

manufacturing sectors) to borrow at record-low rate of 1.6% through state-owned commercial banks. PBoC also

provided CNY 300bn for large banks and selected local banks in Hubei and other severely-hit provinces. Y

Feb. 9

State Council announced total spending worth CNY 80.55bn as emergency funds to mitigate against COVID-19

related shocks to the economy. Y

Feb. 15 Various tax relief measures worth CNY 1tn (or about 1% of GDP), including reductions in employers' required

social insurance payments, lower electricity fees and VAT waivers. Y

Feb. 17-20 PBoC lowered MLF rate by 10bps to 3.15% from 3.25%, the lowest since 2017, and injected CNY 100bn via 7-day

repo. PBoC lowered the benchmark borrowing costs for new corporate and household loans. The one-year LPR was

lowered to 4.05% from 4.15%, and the five-year tenor was lowered to 4.75% down from 4.8%. Y

Mar. 4 7 provinces announced investment projects worth CNY 25tn with CNY 3.5tn to be fully allocated within 2020 Y

Mar. 12-13 PBoC allows a higher cap of 1.25 on foreign debt, a move aimed at helping smaller and private companies raise

more funds overseas. PBoC also cut Reserve Requirement Ratio (RRR) by 0.5 - 1.0 percentage points for banks,

freeing up an additional CNY 550bn liquidity to the interbank market to help virus-impacted companies. The RRR

for large banks is currently 12.5%. Qualified joint-stock commercial banks would enjoy an additional cut of 100 bps.

Y



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China Macro Outlook

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