China eases monetary policy to support an economy threatened by Trump tariffs—yet more stimulus may be needed

On Wednesday, China attenuated the main monetary policy tools in order to strengthen its economy in difficulty as it fights against the effects of low consumption and the commercial war of Donald Trump.

The country's leaders are fighting to rekindle growth, which has not reappeared completely since the COVID-19 pandemic, featured by slow domestic demand and a prolonged crisis in the real estate sector.

This was aggravated by a punitive commercial impasse which saw the American president impose prices reaching 145% on many Chinese products and which Beijing retreated with 125% of imports on imports from the United States.

On Wednesday, the chief of the Chinese central bank Pan Gongsheng said at a press conference that Beijing would reduce a key interest rate and reduced the amount that banks had to hold in reserve in order to increase loans.

He said that Beijing policies were aimed at “supporting technological innovation, stimulating consumption and promoting inclusive finances, among other areas”.

A persistent crisis in the real estate sector – once a key growth engine – also remains an obstacle to the economy.

In an effort to increase demand, Pan also said that the bank would reduce the purchase rate of houses for the first time with loan conditions over five years to 2.6%, compared to 2.85%.

The movements represent some of the most radical stages of China to stimulate the economy since September.

More help required

But analysts underlined a continuous lack of real recovery funds necessary to put the economy on the right track.

“Political measures published today are positive for the market and the economy,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, in a note.

“What is missing in this conference are new budget policy measures, which, I think, can be reserved in the future, if the economy suffers from the trade war and shows clear signs of slowdown,” he added.

Gary NG, main economist for Asia-Pacific at Natixis, told AFP “that it will take more to support growth”.

“If the economic data does not improve, we will probably see more actions on the road,” he said.

Economists have warned that trade disruption between closely integrated American and Chinese economies could threaten businesses, increase consumer prices and cause global recession.

Last month, Beijing blamed a “net change” of the world economy for the collapse of manufacturing.

And exports climbed more than 12% in March while businesses rushed to get ahead of Trump's swingent rates.

Beijing said it was aiming for annual growth this year about five percent, the same as last year and a figure considered ambitious by many economists.

Last year, China announced a series of aggressive measures to rekindle its economy, including interest rate cuts, cancellation of home purchase restrictions, debt ceiling hike for local governments and strengthening support for financial markets.

But after a rally in the blistering market fueled by hopes for a long -awaited “bazooka stimulus, optimism decreased while the authorities abstained to provide a specific figure for bailout.

Analysts now believe that the impact of prices can lead Beijing to reconsider their prudence and move forward with a new stimulus.

This story was initially presented on Fortune.com