China unveiled a package of targeted policies to boost domestic demand as simmering trade tensions threaten to worsen the nation’s economic slowdown.
From a tax cut aimed at fostering research spending spending to special bonds for infrastructure investment, the measures announced late Monday following a meeting of the State Council in Beijing are intended to form a more flexible response to “external uncertainties” than had been implied by budget tightening already in place for this year.
Fiscal policy should now be “more proactive” and better coordinated with financial policy, according to the statement — a signal that the finance ministry will step up its contribution to supporting growth alongside the central bank. The People’s Bank of China has cut reserve ratios three times this year and unveiled a range of measures for the private sector and small business.
The meeting reiterated language that China will strike a balance between easing and tightening and keep liquidity “reasonable and sufficient.” It also pledged to improve the transmission of monetary policy, a phrase the PBOC had dropped since a campaign to curb credit growth started in late 2016.
While there hasn’t been an official shift from the central bank’s “prudent and neutral” policy, steps announced in recent days indicate that officials are taking a supportive stance amid the trade dispute with the U.S. They include Monday’s record injection of funding for banks and the publishing of new guidelines for the asset management industry.
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The economy grew 6.7 percent in the second quarter, the slowest expansion since 2016. Expansion is forecast to slow this year to 6.5 percent, in line with the official target.
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“I don’t think there is a significant easing or a policy U-turn; it’s more of a fine-tuning,” said Larry Hu, head of China economics at Macquarie Securities in Hong Kong. “Policy makers are sewing patches, offsetting the deleveraging drive that was too rapid and fierce.”
The meeting also called for faster investment growth and steady financing to local investment projects. Policy makers stressed they’d refrain from using stimulus to flood the economy.
The policy package includes:
- To give an additional tax cut of 65 billion yuan ($9.6 billion) to companies with R&D expenditure
- To expedite non-budgeted special bond sales to assist local government infrastructure financing
- To ease restrictions on banks’ issuance of financial bonds for small firms
- To activate private investment by introducing projects in transport, gas, and telecommunications
- To further open up and improve policies to attract foreign businesses to re-invest
- To push local governments to make good use of untapped fiscal funds
- To guide financial institutions to ensure reasonable funding to local government financing vehicles, so that necessary projects aren’t held up
- To facilitate construction and planning of a number of big projects that will meet development purposes and public demand
- To accelerate fundamental research and core technology breakthroughs
–With assistance from Xiaoqing Pi.