No GDP growth target for 2020
As we had expected, the National People's Congress (NPC) did not set an explicit GDP growth target for 2020, and emphasized the importance of supporting employment, protecting basic livelihood, and reducing poverty as the main economic objectives instead. This means policy stimulus will be more measured and targeted than in 2009.
Fiscal stimulus 4.5-5% of GDP
We estimate China's total fiscal stimulus to be about 4.8% of GDP in 2020, including 1) 2% of GDP in tax and fee reduction and 0.3% in emergency spending for Covid-19, 2) 0.5% of the 2019 tax & fee cut carried over into 2020, and 3) 2% of GDP in additional spending, mainly in infrastructure (infra investment to grow >10%). The expansion of AFD will be bigger, including tax revenue losses. The expansion of deficit will be financed by a RMB 1 trillion in special treasury bonds, a 1.6 trillion increase in special LG bonds, use of unspent government funds, transfer from other budgets, and some quasi-fiscal means.
Greater credit support – total social financing (TSF) growth to reach 13.8%
While the NPC kept the tone on monetary policy as "prudent", it called for a "notable increase" in money and credit growth. We expect adjusted TSF credit growth to pick up further to 13.8% (vs our previous forecast of 12.5%) in 2020, helped by required reserve ratio (RRR) and policy rate cuts, including a 25 bps deposit rate cut. Increase liquidity should also help support larger corporate and government bond issuance without direct monetization of deficit. We now see credit impulse to jump to >9% in Q4, and see 25-30ppts increase in China's debt/GDP ratio.
More reform and opening – what could surprise?
The NPC called for more opening up and reforms, echoing recent policy directives. We think the most notable new wordings in the broad reform directives relate to 1) using capital market and securitization to increase state capital returns for SOEs in competitive sectors, and 2) affirming and protecting an equal footing of private property rights versus public ones through legislation. The actual implementation of these and other SOE reform measure remains to be seen, but could be a positive surprise for the market if implementation proceeds speedily.