After Germany’s fiscal stimuli announcement two days ago, yesterday China announced its own measures to be able to maintain the target growth rate of 5%. (1) Fiscal Policy Adjustments: China plans to increase its budget deficit to about 4% of its GDP, up from previous years. Additionally, the government intends to issue 1.3 trillion yuan ($179 billion) in special treasury bonds, an increase from 1 trillion yuan in 2024. Local governments will also be permitted to issue 4.4 trillion yuan in special debt, up from 3.9 trillion yuan previously. (2) in its remarks yesterday, premier Xi mentioned the word consumption 31 times, which means he understands the potential impact of tariffs and needs domestic support of the economy and less reliance on exports. (3) Monetary policy: Chinese officials indicated the possibility of further monetary easing, including potential interest rate cuts and reductions in reserve requirements, to inject liquidity into the economy if growth slows. (4) innovation: The government plans to support technological advancements and reduce dependence on foreign technologies. This strategy includes fostering the application of artificial intelligence in sectors such as electric vehicles, smartphones, and robotics. Bond yields around the world are going up, since governments are expanding budget deficits, and the majority of these measures are inflationary.
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