A warning of the risk of asset bubbles and Beijing’s recent net liquidity withdrawal are signals to the market that, while the authorities won’t make a sudden U-turn on pledged policy support, they also won’t tolerate unchecked credit growth.

While it’s clear from the Central Economic Work Conference there would be no sudden turn in overall policy, the antitrust measures underline Beijing’s bottom line of preventing systemic risk.

On the domestic front, the Chinese economy is not out of the woods and there is also the risk of disinflation. From a global perspective, loose monetary policy in the West would result in yuan appreciation were the PBOC to raise rates.

China has moved away from its ‘reform and opening up’ strategy and turned to domestic development with an emphasis on self-reliance. The shifting geopolitical landscape and uncertainty over consumer demand post pandemic suggest a bumpy road ahead.

Amid a challenging geopolitical environment, it is unsurprising that China is looking to bolster its domestic market, but it is unlikely to completely turn inward. While decoupling from the West, it is likely to expand regional cooperation.

With limited policy room and a deeply leveraged economy, China’s central bank is pushing forward with new policy thinking, implementing targeted measures in specific sectors.

As global headwinds grow, China has turned its attention inward to focus on domestically driven economic growth. This will come at the expense of efficiency, but it’s a price Beijing is willing to pay.

Beijing authorities responded quickly to the outbreak of a new wave of infections with aggressive mass testing and a partial lockdown, shoring up public confidence.

At the close of the NPC annual meeting, Premier Li Keqiang made it clear that China will defy market hopes for large-scale stimulus in favour of targeted support to help the economy ‘survive’

Going by China’s experience, it could take countries over three months after lockdown restrictions are eased to get their economies back on track. Economic activity could return to normal levels by the last quarter of 2020.

As the domestic job market has softened and external demand from the US and UK is expected to slow down, more fiscal stimulus should be in the offing. While policies to support the auto sector have been launched, easing of curbs on the property sector looks unlikely.

A cut in the sidelined official one-year deposit rate, unchanged since 2015, is unlikely to push down the cost of loans for battered companies. But the central bank’s hint that it is considering the move signals more policy measures may be required.

China is looking to increase domestic consumption from rapid urbanisation to spur economic growth. But an ageing population, and local government and household borrowing complicate the picture.

Neither Xi nor Trump has run out of cards to play to secure the best possible deal for his side, but each will be careful to avoid scuppering the negotiations. More time spent ironing out the details will be time well spent.

Markets Markets believe certain growth levels need to be maintained in China’s quest to become a ‘moderately prosperous society’ and, ultimately, a superpower. But, given the trade war and changing external circumstances, missing targets may be the new norm.

Trump’s trade war may be spurring China’s growth strategy, and was probably the reason for the delayed fourth plenum. A modern manufacturing sector seems likely to top the agenda for policymakers, given comments from President Xi and moves to channel capital away from the property market.

China pushes ahead with deleveraging and tightening standards to avoid systemic risks, while the US seeks stimulus. These approaches appear opposite, but both are about girding up to maintain an advantage in the trade war.

Concern over capital outflows, the need to deleverage and Beijing’s independent monetary policy mean the PBOC won’t cut rates, even as economic worries encourage other central banks to do so.

Since May, when the tiny Baotou-based bank prompted regulatory intervention, bigger financial institutions have had reason to question whether smaller counterparts are worth the risk.

Should Beijing weaponise the yuan or offload its US Treasury holdings to retaliate against Washington? Probably not. Such measures either make no economic sense or might backfire on China.

While China’s central bank has denied that a big monetary policy change is in the offing, recent signals from officials suggest that the days of accommodative policy are coming to an end.

As pressure grows on China’s leaders to increase funding for small and medium-sized enterprises, it’s the right time for the People’s Bank of China to scrap its benchmark rates and let market-based interest rates be the new anchor.

Beijing is taking extensive measures to stabilise the economy, through the central bank, local governments and an enormous tax-cut package. Already, some indicators seem to be responding to stimulus, which bodes well for global trade.

The Chinese central bank’s new policy tools are clearly meant to encourage banks to extend credit to small businesses. It is a striking change in policy direction, after years of focusing on state-owned enterprises.

With Beijing still struggling to control the debt that swelled as a result of its 2008 rescue package, it has no appetite for more debt-fuelled stimulus. One way to increase domestic demand is to reduce the tax burden.

Beijing is willing to pay the price to ease trade tensions with Washington and buy more time for economic development. But unresolved issues between the two sides mean the trade dispute may not go away in 90 days.

The ‘very good conversation’ on trade between the US and Chinese presidents has eased market fears. However, the market is hesitant to take the US president too seriously, and the Chinese currency’s outlook remains uncertain.

The outlook for the Chinese economy is weak, as consumption falls and the deleveraging campaign stalls. Chinese policymakers need to come up with longer-term solutions and convince the market of China’s commitment to economic openness.

While history and recent moves by the People’s Bank of China indicate the country will prop up the yuan, the currency is unlikely to appreciate significantly any time soon.

Chinese policymakers torn between spurring growth and pushing financial deleveraging should first differentiate bad debt from good – they should reform the state sector, but also provide help to ease companies’ cash flow.