Beijing should roll out more cuts on taxes, interest rates and reserve requirement ratio to avert further economic slowdown and boost the growth momentum, a central bank official said on Tuesday.
Xu Nuojin, deputy director of the People’s Bank of China’s statistics and analysis department, said “China’s economic growth has already touched the bottom line of 7.5 percent, and continued economic slowdown has become the largest risk”, according to his article published on the PBoC website.
Moreover, the economy is now lingering on the edge of “deflation”, as the nation’s producer price index has posted declines for 28 straight months since March 2012. Some industry PPIs have plunged by two thirds, according to Xu.
The nation’s economy still have various “weak points” and mounting “hidden risks”, including the property market, local government finance vehicles, shadow banking and deteriorating bank loan assets.
Therefore, it’s time for Beijing to introduce measures to help stabilize long-term expectations for economic growth. Xu proposed three main measures including lowering tax, interest rate and reserve ratio, Xu said.
General and structural tax cuts would help reduce the tax burden for market participants and stimulate investment, while also aiding in industry restructuring, he said.
It does not make much sense for China to invest the bulk of its massive savings in foreign nations for low returns, while attracting foreign investment with more than five times its foreign investment return. Therefore, it’s necessary to reduce interest rates to lower financing costs for domestic companies by using the huge savings, he said.
A further reduction in banks’ reserve requirement ratio would pump more money into the market and reduce financing costs. The two targeted reserve requirement ratio cuts have already achieved good results in boosting economic growth, he added.
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