China’s annual National People’s Congress (NPC) meeting has finally been rescheduled for next week, starting on May 22. While most media attention is focused on the GDP growth target—or its potential omission—the more significant story is that China’s fiscal policy options are still constrained, and will be decided independently of any growth target. Fiscal support for the economy at the NPC will be meaningful—a policy impulse of 1.5 to 2.0% of GDP over last year’s level, or even as high as 3-4% if “special treasury bonds” are included—but not game-changing in terms of China’s overall economic outlook. The potential for an upside surprise in policy support is from the unannounced uses of special treasury bond proceeds. If those proceeds are used for bank recapitalizations or non-performing asset sales, this could help to boost credit growth levels more substantially later this year.
