Chief economist update: China is back on track

"Spring is the time of plans and projects." - Leo Tolstoy, Anna Karenina.

So it is with China. Recent economic indicators have turned up in time for spring.

China deserves to be congratulated. It's watered and fertilised the economy with enough monetary and fiscal stimulus that green shoots are beginning to appear.

The People's Bank of China cut the reserve requirement ratio (RRR) - 0.5% on January 15 and 0.5% on January 25 - that is estimated to release around 800 billion yuan (US$117 billion) of liquidity into the economy.

This was followed by fiscal easing measures - budget deficit target raised to 2.8% of GDP this year from 2.6% in 2018; CNY2.0 trillion tax cuts; a 3% cut in the top bracket VAT rate; raised local government special bond issuance to CNY2.15 trillion from CNY1.3 trillion in 2018 to aid infrastructure investment as well as signalling further reductions in the reserve requirement ratio for smaller banks.

So much so that when the Chinese Politburo met and reviewed the economy's first quarter performance on Good Friday, it was good.

Unlike in previous Politburo tete-a-tete, the latest statement no longer mentioned "stabilising employment, finance, trade, foreign investment, investment and expectations".

Instead, central government is shifting its focus back to "reform and opening up" and "restructure" - of the economy - one of America's demands in the ongoing Sino-US trade negotiations.

However, it appears good news (on China's economy) is bad news (for equity market investors).

China's CSI 300 index dropped by 2.3% on the day, in reaction to the Politburo's statement.

Still, the index remains 33.7% higher this year to date and its upward trend remains intact.

Read more: Bank of China
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