The IMF projects that China will expand by less than 6% in 2020, but unless China provides more stimulus, it may be difficult to achieve. This is not only my view but also the view of Helen Qiao, the chief economist for Greater China at Bank of America. I was on the Bloomberg set with Alix Steele and Ms. Qiao earlier today.
The PBOC passed on an opportunity to cut rates this week when it set the new Loan Prime Rate. Qiao says there is still a window for fresh action and it comes next week after the Politburo reviews the Q3 performance. This may provide the fundamental cover to ease policy. She fears that China is slipping behind the curve and is experiencing a widening output gap. Qiao thinks not only should the PBOC lending prime rate but also the one-year benchmark rate (4.35%).
I asked if the slowing in China is due to the trade conflict with the US or the evolution of the Chinese economy itself. Qiao recognized the impact of both are being felt but suggested that the slowdown preceded the tariff battle. She indicated that this gradual slowing of growth was not merely structural, which Chinese critics often emphasize, but also a consequence of the purposeful deleveraging the officials are pushing.