The severe, deleveraging-driven tightening of credit has had a big impact on economic growth since the focus on financial stability adopted after the 19th Communist Party congress in October 2017. Since late last year, we have seen an uptick in credit in credit growth, and the deterioration in domestic economic indicators means this is likely to continue. Continued policy support will be required to stabilise growth, both fiscal and monetary. This pro-growth bias has been confirmed by Chinese president Xi Jinping, who has indicated that Beijing is committed to supporting economic growth.
Policymakers are making moves to counter the economic slowdown and combat the downward pressure on the economy that preceded the trade war and really began with the crackdown on leverage. The aforementioned deleveraging campaign that was responsible for the constriction in credit and downward pressure on the economy appears to have been abandoned, as we discussed previously
The problem of credit transmission, however, remains. These new stimulus measures fall on a weaker economy saturated with debt where the marginal impact of such measures will be less than in previous episodes of stimulus.