Investment strategist David Roche on China easing monetary policy


Monetary policy in China is set to ease as the government continues to focus on stability and the theme of “common prosperity,” veteran investment strategist David Roche said on Monday.

Common prosperity refers to the Chinese government’s aim to generate moderate wealth for all, in response to the widening rich-poor gap that has emerged in the country.

In order to achieve that, Beijing is likely to cut lending rates further, inject money into banks to lend to small and medium enterprises as well as ensure that troubled property developers deliver on their projects, Roche, president and global strategist at Independent Strategy, told CNBC’s “Squawk Box Asia” on Monday.

“Those are the measures I’d expect we will see a lot more of, because the economic figures are bad, and that’s bad for the [Communist] Party,” he said.

The government will prioritize stability, said Roche.

“The kind of ideological ‘common prosperity’ themes will not go on the back burner,” he added.

Read more about China from CNBC Pro

Supply chain shocks

Roche also said that if products can’t be shipped or if shipping costs make the items prohibitively expensive, consumers will buy less, and sellers — who will be earning less — will also reduce their spending.

“The effect of all that happening is that you lose confidence, so you also spend less,” he said. “Supply and demand disruptions are actually the flip side of the same coin.”

Roche added that relatively small disruptions such as coronavirus infections can lead to “a very big economic consequence” beyond the borders of a country.

China’s decision to lock down cities and ports because of a few reported Covid cases would, for example, have a knock-on effect on shipping containers moving from China to the United States, he said.

“That impacts the whole supply chain and then demand, confidence and everything else,” he said.

Supply chains have been under immense pressure this year and trade credit insurer Euler Hermes predicts disruptions will continue until the second half of 2022.

By nature, supply-side shocks are “stagflationary,” because they make output and demand fall, while causing prices to rise because of scarcity and higher shipping costs, Roche said.

“Now the question is how widespread this becomes, how good central banks are in fighting it,” he said. The effects of supply-side shocks on expectations are also “key to whether this sort of stagflationary shock becomes a general stagflationary macroeconomic environment,” he said.

— CNBC’s Evelyn Cheng contributed to this report.