Citi Observes Additional Stimulus in China as Export-Driven Growth Slows

Analysts from Citi suggest that the Chinese government is likely to implement additional, albeit gradual, stimulus measures in the upcoming months. This is particularly relevant as indications show that economic support from exports may have reached its peak.

In August, China experienced growth that surpassed expectations despite the imposition of increased trade tariffs by Western countries on several critical sectors, notably electric vehicles. While exports of vehicles contributed significantly to the overall growth, Citi has pointed out signs that suggest this export momentum might be waning. They observed a slowdown in global manufacturing activity and noted weak demand for personal computers—a major export driver—as well as some sluggish trends in the semiconductor market, indicating a possible decline in export growth going forward.

Additionally, challenges stemming from U.S. policies are anticipated, with reports indicating that lawmakers are preparing to introduce further trade restrictions on Chinese businesses. Citi expects that Sino-U.S. trade tariffs will remain in place even after the 2024 presidential elections, particularly with the Republican candidate proposing an increase in tariffs on all Chinese imports.

On the Democratic side, the current administration has maintained high tariffs on China, established during the previous administration, without any indications of a potential reduction.

Despite the stronger-than-expected export performance, domestic consumption in China showed a significantly slower rate of growth in August, reflecting weak local demand. In response, Citi anticipates that Beijing will likely introduce “incremental” stimulus measures to bolster domestic economic activity, especially in light of growing export challenges.

The bank forecasts a potential reduction of 10 to 20 basis points in China’s policy interest rates, a 50 basis point cut to the reserve requirement ratio, along with additional rounds of mortgage adjustments by the government.

Thus far, China has introduced various liquidity measures aimed at supporting local demand; however, a sustained trend of disinflation suggests that more significant progress is still needed.