Multiple moves on table to spur consumption

China is likely to announce additional stimulus policies, including extra fiscal support, targeted monetary easing and stronger consumption-boosting initiatives, to put its economic growth on a more solid footing, as the country's top leadership usually convenes a high-level meeting centered on economic issues around the end of April, analysts said.

The tone-setting meeting would be an important occasion for China's policymakers to reassess the fast-paced developments in the trade war initiated by Washington against Beijing over the past month, and to formulate offsetting policies in response, they added.

"While the 5.4 percent GDP growth rate in the first quarter is a good start, key indicators like the consumer price index and producer price index suggest that weakness in domestic demand still persists," said Xiong Yuan, chief economist at Guosheng Securities.

The impact of the tariffs by the United States, which is expected to materialize more visibly in the second quarter, further underscores the urgency for policymakers to ramp up supportive efforts, Xiong said.

China's top leadership has suggested on various occasions that the country has ample capability to roll out new policy measures as needed, to address the rising uncertainties in the external environment.

Premier Li Qiang said on April 17 during a study session held by the State Council — the country's Cabinet — that at critical moments, the government must act swiftly to deploy policy tools across various fronts in order to generate positive market expectations.

Analysts expect that the end-April meeting is poised to introduce significant fiscal stimulus measures, potentially exceeding 1 trillion yuan ($137 billion) in scale.

"We expect incremental funds of 1.5 trillion yuan, or 1 percent of GDP, on top of the budget approved earlier this year. End-demand, especially consumption, should be more a focus than investment this time, given the nature of the tariff shock," Citi analysts said in a report on Monday.

China Galaxy Securities also said on Sunday in a report that the size of the new fiscal stimulus measures could be around 1.5 to 2 trillion yuan, with a particular emphasis on further strengthening policies to stimulate consumption.

In particular, with the goal of better offsetting the slowdown in external demand, the overall fiscal budget for consumption-boosting measures this year might be increased from the initially planned 300 billion yuan to a range of 700 billion yuan to 1 trillion yuan, said Feng Lin, executive director of the research and development department at Golden Credit Rating International.

China's annual exports to the US have been around $500 billion in recent years, which is equivalent to 7-8 percent of the China's domestic consumer goods consumption, according to Feng.

"This means that as long as domestic consumption is effectively stimulated, China is capable of absorbing the decline in exports to the US. Before the pandemic, the normal growth rate of the country's total retail sales of consumer goods was between 8 and 9 percent," Feng said.

Notably, any major fiscal policy in China requires going through legislative procedures. The Standing Committee of the National People's Congress, which has the power to approve budget adjustments, is scheduled to meet in Beijing from Sunday to Wednesday.

"If any fiscal resolution indicated by the upcoming meeting is approved by the NPC Standing Committee, it would buttress Beijing's determination to achieve growth despite the trade hardships," Citi said.

Even if the upcoming meeting and the NPC Standing Committee session greenlight new fiscal stimulus measures, analysts said the details and timeline of the rollouts would be determined in a flexible manner, depending on the evolving economic dynamics.

For the previously announced government bonds in March, the country is expected to accelerate their issuance in the second quarter, and expedite the utilization of these funds to support concrete projects, said Zhang Jun, chief economist at China Galaxy Securities.

The anticipated introduction of the extra fiscal stimulus measures and accelerated implementation of the existing ones would "create a window of opportunity" for a corresponding level of liquidity support from the monetary policy side, Zhang said.

China's central bank is expected to employ a combination of both quantitative and structural policy tools, with a reserve requirement ratio cut of around 20 basis points likely to be implemented on the heels of the end-April meeting, followed by a potential interest rate reduction around June. The government is also expected to introduce a range of structural monetary policies aimed at providing targeted relief to the foreign trade sector, as well as bolstering consumer demand and technological innovation, Zhang added.

Citi said in its report that, "Finding patience to play the long game, the end-April meeting will stick to the policy framework of 'high-quality development' and will not take an all-out approach."

Zhou Lanxu contributed to this story.