To arrest weakening economic momentum, China needs more meaningful support from domestic policies, combined with a more favourable external macro environment, analysts said as the recent US Federal Reserve rate cut has fuelled debate over its potential impact on China’s economy.
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And the Fed’s easing alone, they say, is not the cure-all for China’s economy.
“The development of China’s economy and capital markets still depends on stable domestic demand, and the recovery of China’s internal growth momentum cannot be resolved by relying on Fed rate cuts or further domestic monetary policy easing,” said Wei Hongxu, a researcher at Anbound, a Beijing-based public policy consultancy.
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“For China, the Fed’s shift to a rate-cutting cycle narrows the policy gap between the two countries and reduces the interest-rate differential, expanding room for domestic monetary policy,” Wei said, adding that the negative impact of a potential US economic growth slowdown on China’s foreign trade cannot be ignored.
A hitch in domestic demand has become a stumbling block for China as it is running out of time to reach its annual growth target of “around 5 per cent”, as residents slash consumption and businesses scale back production.