China has a $ 3.65 trillion war chest to receive US tariffs

(Bloomberg) – Beijing's main defense against war events this year is more likely to come from the Treasury than the central bank, no matter what President Donald Trump says.

If tariffs start to really hurt China's growth this year, there is plenty of direct fiscal weaponry again to stoke the economy before People's Bank of China had to cut interest rates, according to an analysis of Bloomberg's public spending. Data released Wednesday showed a downturn throughout the world in April.

Central and local government in China has at least 25.1 billion yuan ($ 3.65 trillion) unused in their budgets this year, data aggregated using official budget plans. There are two trillion yuan more than the ammunition China had in the same period last year – and roughly equal to the annual output in Germany.

"Chinese leaders will better exploit different types of political tools than their US counterparts whose trade war continues, and that's where China's confidence comes from," said Serena Zhou, economist at Mizuho Securities Asia Ltd in Hong Kong. Treasury policy to the dominant role of state-owned enterprises, China's control of the economy is clearly stronger than the United States, "she said.

In fact, PBOC Governor Yi Gang has spent the past year, saying he wants to avoid a" flood "of stimulus, and presses back to the expectations of benchmark interest rate cuts he is seeking to curb market bubbles and keep the lid on debt growth.

That said, economists from Morgan Stanley and China International Capital Corporation to Macquarie Securities expect further cuts in the share of deposits banks need to lock away, as the authorities seem to keep the credit crane flowing.

The authorities have hit finance police Expenditure earlier this year than they usually do, with the most obvious front-loading coming in infrastructure-related areas such as transport and environmental protection.

Nevertheless, more than two-thirds of the total "expanded" budget – the general publication c budget, the state budget budget and special government bonds together – remains unused.

Of course, only increasing the year's expenses is not the limit for fiscal measures if the trade wars blow out and significantly affect economic growth. Officials can support growth by selling more debt through municipal finance vehicles and police departments, even though it is starting to counteract the target of clearing up debt.

"China can strengthen its pro-growth policy if the US imposes surcharges of $ 300 billion worth of Chinese goods" and the preferred options include expansive fiscal policies such as tax and tax cuts, according to CICC economists.

A serious slowdown in growth is likely to provide a "no matter what" moment for China's decision makers. Otherwise, the Communist Party meets the inability to fulfill its long-term growth target, just in time for its centenary in 2021. For its part, the PBOC has also proven to be lean towards a relief bias since this month as escalating trade tensions.

Compared to the room for more fiscal stimulus, the PBOC has less room to maneuver and is likely to adhere to the "targeted approach" for now. Universal cutbacks on reserve quotas and interest rates, however, are on the table if the economy faces greater challenges, said Wang Yifeng, chief analyst at the Bank of Everbright Securities Co. in Beijing.

The central bank has proved to be more inviting in open market operations since the beginning of May, adding liquidity to stabilize the market sentiment. Monetary policy officials also sought to ease investors by saying that they have ample policy rooms and tools to deal with any uncertainties.

"We cannot quantify the impact of the trade war on corporate feelings, so the real influence can be greater" than what economists estimate suggests, strengthening the case for more pro-growth policies, said Hong Kong-based economy Robin Xing, Morgan Stanley.

– With help from Shuqin Ding.

To contact Bloomberg News employees for this History: Yinan Zhao in Beijing at yzhao300@bloomberg.net; Ling Zeng in Shanghai at lzeng30@bloomberg.net; Heng Xie in Beijing at hxie34@bloomberg.net

To contact the editors responsible for this story: Jeffrey Black at jblack25 @ blomberg.net, Brian Swint

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