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April 9, 2019

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Strong upside now seen for the national economy

Market observers are seeing more upside than expected in China’s economy with more signs of stabilizing in the first quarter and the consumption driver revving up.

While official data including trade and inflation of March are yet to be released for this week, market sentiment has already been buoyed by positive indicators that are playing down concerns over uncertainties in the world’s second-largest economy.

Snapshots of the January-February period pointed to a pickup in investment, stable consumer spending and optimized industrial structure, and more obvious recovery has been identified in March with steady factory and service sector activities.

Consumption, a locomotive of China’s economic growth, is picked by many analysts as one of the bright spots of recovering fundamentals.

Swiss global financial services company UBS said China’s consumption may stay more resilient than forecast as tax cuts, credit easing and confidence improving help to offset the not-so-strong headwinds of labor market weakness and property slowdown.

“Personal income tax cuts and value-added tax cuts should be positive for consumption,” UBS economist Wang Tao said. “PIT cuts are expected to be over 300 billion yuan (US$44.6 billion) in 2019.”

“Some of the VAT cuts should be passed through to consumers as final goods prices are lowered, and this can help encourage more demand,” he said. “Moreover, import tariffs and VAT have been lowered, including that for cross-border-e-commerce businesses, to reduce the price for domestic consumers.”

The UBS said the improvement in domestic demand may have underpinned China’s import growth, predicting an improvement in import growth for March despite a high base last year.

Investment banking firm CICC also believes there are reasons to become incrementally more optimistic on overall consumption growth in China, especially compared with last year.

A marked downturn in retail sales may have spooked some market watchers, but worries for a continuous slowdown could be overblown.

“Leading indicators point to a potential stabilization of nominal growth in China, which is supportive to overall discretionary consumption growth,” the CICC said.


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