According to the Government Work Report delivered by  Premier Li Keqiang during the 2019 two sessions, China’s monetary policy will remain neutral this year.

To be more specific, China needs to maintain the growth rate of annual currency issuance at 10 to 13 percent. Once it falls below that level, the country’s economic growth will slow down. The figures seem high enough, while the truth is domestic real-economy industries still find it hard to get access to funds shifted by commercial banks from on-balance-sheet to off-balance-sheet businesses, an empty cycling aimed at evading regulation.

A mystery surrounding China’s economy is why it witnesses no inflation despite the rapidly rising currency stock and where the money flows, as the domestic stock market only sees moderate rise. I think this is because the idle funds in banks are not put to practical use. Since the possibility of China launching a flood-like stimulus is increasingly reducing, the monetary policy will be changed toward providing small and medium-sized banks with loans to allow funds to flow into the real economy. Still, whether this expectation can be realized remains to be seen.

Meanwhile, according to the Ministry of Finance, nearly 4 trillion yuan was be distributed to local governments in advance in the first quarter of 2019, including transferred payments and treasury bonds. The move is expected to have positive effects, but things still depends on the actual performance of local government financing platforms.

The operation of the platforms is not be transparent enough, but China’s current institutions and the need to promote economic development make them indispensable in the short term.

Since China’s economic system focuses on indirect financing, funds provided by small and medium-sized banks as well as large ones to private enterprises are not sufficient to control risks. So, domestic small to medium-sized enterprises can survive for only around two years on average due to high risks.

For large-scale private enterprises, funds are mostly from the shadow banking sector.

After China unveiled its new policy for regulating financial institutions on asset management, the scale of shadow banking has shrunk significantly, making it even harder for SMEs to borrow money through the current financial system dominated by banks.

Currently, banks tend not to lend much money to private enterprises, especially SMEs. So, local government financing platforms play the role of second-level financing channels.

After money is input and transferred between banks, many asset management products are purchased, with a large share flowing to local governments.

And since Chinese local governments are responsible for economic development and cannot file for bankruptcy protection like Detroit in the United States, the authorities need to ensure due payment.

Also, market confidence in local government financing will also be enhanced as governments start to shoulder their responsibilities better.

Since good projects can maintain themselves through local financing platforms, it is too soon to make one-size-fits-all ban.

According to findings of our research, investment in infrastructure is crucial for ensuring stable economic growth. And although large-scale investment is not the best solution, there are no better ways given the current institutions.

Of course, collusion of local governments and enterprises to file for fake bankruptcies and cheat financial institutions need to be prevented as once financial enterprises lose willingness to lend funds, China’s economy may enter a dead end.

The Sino-US trade talks have brought the largest uncertainties to China’s economy this year. But the country’s economy will improve in the second half of 2019 if the trade talks continue to produce fruitful results.

In 2018, the sluggish performance of China’s economy led the stock market to crash and the yuan to depreciate on a large scale, which is similar to the case of 2015.

So, the government launched a moderate stimulus at the beginning of 2016, and the economy recovered completely by the end of the year as real estate inventories were almost completely destocked overnight. In some places, housing prices rose by 40 to 60 percent. The situation this year is similar to that of 2016 as there are great uncertainties caused by the trade talks.

In my opinion, US President Donald Trump is willing to sign a deal as soon as possible due to the forthcoming presidential elections, and he hopes to achieve a clear result favorable for his election. Meanwhile, he hopes to boost the US stock market through agreements with China.

Meanwhile, the trade talks are progressing slowly mainly because the US is asking for too much from China to reach a consensus with it. According to the US, China needs to follow its requirements, otherwise it will start a 25 percent tariff.  Obviously, this is unacceptable to China.

Besides, China has proposed to the United States should not use security as a barrier to free trade.

The United States hypes free trade and its enterprises have merged many Chinese counterparts with themselves as China steadily opens up its market. However, safeguarding national security and preventing technology transfer have been used as excuses by the United States to prevent Chinese companies from merging with US enterprises.

It is also not fair that high-tech Chinese enterprises such as Huawei cannot enter the US market.

China’s request for equivalent treatment is reasonable, but the United States seems to be finding it hard to accept this for it is controlled not only by an elected administration but institutions responsible for national security such as the Central Intelligence Agency and the Federal Bureau of Investigation. And given their powers, the latter are the actual guardians of “American interests.”

Also, the hawks in the Republican Party want  that the US  should cut its ties with China, an opinion not in line with that of President Trump.

But President Trump needs the support from the Republican hawks if he wants to be re-elected. Therefore, the views of the hawks have a strong influence on Sino-US agreements, which is a cause for concern.

It would be optimal if differences between China and the United States can be resolved in the next three months, because if the frictions drag into the second half of this year, the situation may become more complicated.

The situation could grow complex because after the US election campaign begins, no one can predict how President Trump will react.

However, the recovery of China’s economy in the second half of 2019 is still possible with appropriate policies.

The author is the Dean of the National School of Development, Peking University.