With the RRR cut, a partial rollover of the MLF and weaker economic data, economists at ING believe that the risks to economic growth are mounting. They discuss these risks and the possible policy actions that may follow.
The RRR cut with the rollover of MLF look more reasonable
“Risks from international politics: US Treasury Secretary, Janet Yellen, has said that there won't be talks between the US and China at a high level. Before this decision, 25 Chinese companies were added to the entity list by the US, all of these in the technology sector. Japan has also said that it will line up with the US to confront the rise of China in the technology area. This all points to the technology war that China is having to face, and this will affect how China can source necessary electronic components to manufacture their own technology products.”
“Risks from within: Even with the pressure stemming from the technology war, China is reforming fintechs and data privacy, as well as deleveraging the real estate sector. Both will put downward pressure on growth in the short term but will reduce risks to the economy and the financial system in the future.”
“We believe that there will be another RRR cut in the next quarter if these risk factors do not abate.”
“We are revising our 2021 GDP forecast to 9.4% from 8.7%, mainly due to our weaker forecast in 2Q than the reported figure, and a slight upward adjustment for 3Q21 to reflect the boost from the RRR cut.”
“We continue to expect no change in policy interest rates for 2021, including the loan prime rate (LPR) and 7D policy rate.”
“We are keeping our USD/CNY forecast at 6.45 for the end of 2021.”