Date
19 October 2018
Premier Li Keqiang urged the State Council to allow fiscal and financial policy to play a bigger role, and domestic consumption expansion to support the real economy. Photo: China News
Premier Li Keqiang urged the State Council to allow fiscal and financial policy to play a bigger role, and domestic consumption expansion to support the real economy. Photo: China News

China to adopt modest easing to stimulate growth

China’s State Council has unveiled a raft of measures, including tax cuts and infrastructure spending, to boost domestic growth.

The People’s Bank of China has also injected a massive 502 billion yuan (US$74 billion) through its Medium-term Lending Facility.

“We’ve already achieved success in deleveraging, and the policy would shift to stable leverage in the second half of this year,” the official People’s Daily said in a front-page commentary.

Various signs indicate that China’s monetary policy will be slightly loosened in the coming months. And the property and financial sectors are likely to struggle less with the liquidity crunch.

In a meeting on Monday, Premier Li Keqiang urged the State Council to allow fiscal and financial policy to play a bigger role, and domestic consumption expansion to support the real economy.

The cabinet also pledged to adopt more measures to drive investment.

“Fiscal policy will be more proactive and will focus on cutting tax and reducing fees,” the State Council said during the meeting.

The government will try to introduce 65 billion yuan in tax cuts by allowing all firms to deduct research fees from their taxable base.

The State Council also agreed that fiscal and monetary policies must be coordinated to serve the broad economy, apparently in reaction to a recent public row on the issue between the PBOC and the Ministry of Finance.

Moreover, the meeting said monetary policy should be able to maintain social financing and liquidity at reasonably abundant levels, and stressed the need to enhance the system of communicating monetary and credit policies.

The cabinet also pledged to drive stable growth through efficient investment. 

The government will encourage private capital in transport, oil and gas, telecommunications and infrastructure projects, the State Council said.

This is the first time that the cabinet has highlighted infrastructure investment again after nearly three years.

Meanwhile, the central bank released guidelines for the wealth management industry, allowing asset management products to invest in non-standard debt assets in accordance with regulations on disclosure and quota limits.

The transition period for the new regulations will last until end-2020.

Chinese regulators had originally intended to tighten the nation’s trillion-yuan wealth management industry by the end of June next year. That has sparked market panic since financial institutions are required to move massive off-balance-sheet assets to the balance sheet.

The domestic onshore market has seen many credit defaults, and the borrowing rate for large state-owned enterprises has surged above 7 percent.

As such, the new easing measures are likely to calm down financial institutions and corporates.

This article appeared in the Hong Kong Economic Journal on July 26

Translation by Julie Zhu

[Chinese version 中文版]

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RT/CG

Hong Kong Economic Journal columnist

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