Traders Yawn As China Pledges "Significant" Tax Cuts, More Monetary Stimulus In 2019

More tax cuts, and possibly looser monetary policy, will be adopted by the Chinese Communist Party next year as China's leadership struggles to reverse the trend of slowing economic growth and financial market instability that have been exacerbated by the trade war between the world's two largest economies instigated by President Trump.

After a separate entity - the Financial Stability and Development Committee, led by top Chinese economic official Liu He - denied online rumors about possible tax cuts next year, a statement released by the Central Economic Work Conference, published after the close of this week's meeting, indicated that China would do exactly that - imposing a "proactive" fiscal policy and "prudent" monetary policy next year - to "improve efficiency, larger scale tax and fee cuts will be implemented next year".

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Here's a summary of the statement, courtesy of Bloomberg:

  • Monetary policy should be "prudent" and strike an "appropriate" balance between tightening and loosening, officials decided at a key economic planning meeting.
  • The term ‘neutral’ was dropped from the statement, released by the official Xinhua News Agency after the annual Central Economic Work Conference.
  • Fiscal policy will be "proactive" in 2019 and should be stronger and more efficient; the government should implement reductions in taxes and fees on a "larger scale".
  • Policies should keep liquidity reasonable and sufficient, improve monetary policy transmission and boost the ratio of direct financing to address funding difficulties for companies.

The kneejerk reaction was that this may be "the thing" traders had been looking for...

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