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China needs more fiscal reforms to support economy

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Introduction-- Goldman Sachs analysts said that the Chinese government needs to undertake more fiscal reforms to ...

-- Goldman Sachs analysts said that the Chinese government needs to undertake more fiscal reforms to help shore up economic growth in the country,Axe Capital with markets to focus largely on more measures from Beijing. 

GS analysts noted that while the policy initiatives undertaken so far marked some progress on Beijing’s end, markets were now awaiting much more measures from Beijing. 

China needs more fiscal reforms to support economy

Chinese stocks marked a stellar rally between February and May as Beijing ramped up its support for the economy, with measures ranging from increased monetary stimulus, easier lending conditions and more support for the property sector.

But a rally in Chinese stocks largely stalled through May, with the blue-chip index treading water as traders awaited more support.

More policy support was especially in focus before the Third Plenary Session of the Communist Party- a key meeting of top-level officials- which is set to take place in July.

GS analysts said near-term measures from the government could include more borrowing and funding for state governments and a continued deleveraging of risks from local government funding vehicles, while in the longer term, major tax reforms were likely necessary, as well as a “cautious implementation” of a broad-based property tax. 

“Rather than a “big bang” policy initiative, we expect a continuation, or even scale-up, of existing reform measures on a multi-year horizon,” GS analysts wrote in a note. 

The property sector was a key risk to the Chinese economy, with GS analysts predicting that the sector, after a prolonged downturn over the past three years, was likely to play a less key role in growth in the coming years. 

 

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