China expected to change growth target as inflation weakens
After months of dealing with the COVID-19 crisis, the People’s Bank of China (PBoC) is releasing their annual and monthly inflation numbers for April 2020.
The US-China trade war slowed down the Chinese economy in 2019. Now, COVID-19 has shutdown the Chinese economy and crippled exports in January and February. In response to both crises, the PBoC pumped hundreds of billions of dollars into the financial sector by lowering borrower’s interest rates and providing liquidity to Chinese banks.
The pandemic has driven global oil prices to historic lows, leading to lower prices on materials and the manufactured goods produced. Low prices could lead to further decreased production of goods, thus slowing down the Chinese economy further. The PBoC can continue to cut rates and provide money for the banking sector, but if prices don’t pick up a “debt-deflation” cycle will begin where falling prices increase borrower’s debt burdens and destabilise the economy further.
Today’s figures all point towards China’s worst economic performance from before Deng Xiaoping’s economic modernisation program began in 1976. When the National People’s Congress meets again on May 22, it is likely to scrap the annual GDP target, and will likely move to drive up inflation by providing loans to Chinese businesses in the hope that this stabilises the economy.
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