Officials still in denial over growth, scale of stimulus

China’s government will only lower its 2020 GDP target marginally, to around 5% according to media reports. Given the sharp contraction in output this quarter, this would require implausibly strong activity during the rest of the year. Officials are also reportedly planning only modest increases in the budget deficit and local government bond quotas. We think that they will need to do a lot more to get the economy back on track and that the longer they delay more substantial stimulus in the belief that it is not needed, the greater the risk of a more protracted downturn.