Goldman Sees Loose Monetary, Fiscal Policy Amid China Crackdowns

China’s various industry crackdowns from technology to education mean monetary and fiscal policies will likely remain loose on the margin to offset the drag on economic growth, economists at Goldman Sachs Group Inc. said.

The economy is in a “micro takes and macro gives” environment, where regulatory tightening in specific sectors will likely be accompanied by supportive policy from monetary and fiscal authorities, Goldman’s chief China economist Hui Shan and others wrote in a note.

Sector-level restrictions will impact economic growth by lowering the level of employment and activity, affecting financial conditions and hurting investors’ sentiment, they said.

“Monetary and fiscal policy will need to ease to counterbalance the drags,” although the easing will likely be measured, they said. They also forecast that economic data will probably be weak in August, before a rebound in September and a strong fourth quarter on a sequential basis. 

Policy makers have ramped up their targeted approach of stimulus in recent weeks, offering cheap funding to banks and accelerating the sale of local government bonds. The economy has taken a knock from fresh virus outbreaks, a tightly controlled property market and the regulatory storm on after-school tutoring and Internet companies. 

Goldman’s economists said communication between policy makers and the markets on those regulations is important to retain confidence, and that coordination among various policy goals is also needed.  

“Without policy makers communicating their thinking behind the new regulations, markets are prone to interpret such regulatory actions as an attack on profitable private companies and signs that economic growth and market liberalization are no longer important to the government,” they said. 

©2021 Bloomberg L.P.

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