China: What will it take to achieve the growth target? - Standard Chartered

The current US tariff rate will drag China's GDP growth lower by c.1.8ppt. Any further increases in tariffs are likely to have little impact on China's growth. Another CNY 1.5-2.0tn of fiscal support is needed, supported by moderately loose monetary policy, Standard Chartered's economists report.

The perfect storm

"Over the past week, the US and China have announced sweeping tariffs in multiple rounds of retaliation. As of now, China's tariff on US products has jumped to 142%, and the US' tariff on China has surged to 157%, according to our estimate. As bilateral tariffs are already punitively high, any further increase in tariffs is likely to have a diminishing impact on China's growth."

"We estimate that the current tariff rate will lower China's GDP growth by about 1.8ppt. While there are further risks to our estimate from a potential global recession and repercussions on domestic employment, consumption and investment, we also see mitigating factors. The US' 90-day delay in non-China reciprocal tariffs should help keep goods with China-produced content flowing to the US. Further, a moderate depreciation in the CNY could act as a shock absorber. More importantly, China can continue to explore new export destinations while reducing its reliance on overall imports, which should help offset the US tariff impact on its net exports."

"China and the US appear to be locked in a high-stakes game, with the near-term prospect of either side backing down before economic pain is inflicted looking dim. We see downside risks to China's growth but believe that the government will roll out more stimulus to prevent growth from significantly undershooting its 5% growth target. A further CNY 1.5-2.0tn (1.0-1.5% of GDP) of fiscal stimulus is needed, in our view. The Politburo meetings in late April and July will be key events to watch."