China in new growth push to fight prolonged US trade war, top policy body indicates
By Frank Tang From South China Morning Post
- Financial Stability and Development Commission, chaired by Vice-Premier Liu He, says Beijing is ready to step up help for the growth amid escalated trade tensions
- But there is no indication that it will engage in all-out stimulus to support the economy despite latest round of tariffs from US President Donald Trump
China will have go a step further in easing monetary policy and increasing fiscal spending to help support domestic growth given that Beijing sees no near-term resolution to its trade war with the United States, a top policy body has indicated.
While the Chinese government policy body did not call for all-out stimulus, it made clear Beijing would not shy away from pumping additional credit into its banking system or boosting fiscal support for the economy, according to the conclusions announced by the decision making meeting chaired by Vice-Premier Liu He.
China will “enhance countercyclical measures in macroeconomic policies … to ensure sufficient liquidity and reasonable growth in credit,” according to a statement by the government’s Financial Stability and Development Commission on Sunday. The wording marked a subtle change from previous policy statements that called only for “appropriate” fine-tuning of monetary policy.
The statement did not mention the trade war with the US, but included specific guidelines on what China should do to manage its economy in the coming months. It urged financial institutions to help sell local government special bonds, with proceeds to be used for government-backed investment projects, while it also told local authorities to “fully tap investment potential”.
In a contrast to earlier instructions to local governments to restrict the accumulation of addition debt, the commission said it would encourage “some regions and sectors” to accelerate investments if officials are able to show a “willingness to get things done” and “courage to shoulder responsibility”. Specifically, investments in infrastructure, hi-tech industries, the upgrade of traditional industries and social services would be encouraged.
Analysts said Beijing needs to ease policy further given the rising pressures from the trade war headwinds as well as the domestic growth slowdown. Despite efforts to boost government infrastructure investment this year, China’s fixed asset investment growth slowed to 5.7 per cent in the first seven months of 2019, near an all-time low.Louis Kuijs, head of Asia economics at Oxford Economics, said on Tuesday that the world’s second largest economy has yet to find a firm footing, predicting that China’s headline gross domestic product rate is likely to slow to only 5.7 per cent next year, below the 6 to 6.5 per cent target range for this year.
“The impact of China’s fiscal and monetary easing on growth has so far been relatively slight … The key downside risk is policymakers not stepping up policy support sufficiently,” he warned.
Raymond Yeung, chief Greater China economist of ANZ Bank, said the commission’s statement conveyed the message of further policy support, but argued that the priority should focus on boosting demand rather than printing money.
“Fiscal policy should take the lead. The government should accelerate the implementation of existing measures, including quicker project approval and fund appropriation, as well as increase bond issuance and [business] fee reductions,” Yeung said.
Fiscal policy should take the lead. The government should accelerate the implementation of existing measures, including quicker project approval and fund appropriation, as well as increase bond issuance and [business] fee reductionsRaymond Yeung
Meanwhile, there is still room to loosen monetary policy, including a targeted cut of the amount of financial reserves that banks are required to keep at the central bank, as well as further reduction in interest rates, he added.Vice-Premier Liu, who chaired Saturday’s meeting, is China’s chief negotiator in trade talks with the US, although the two countries have not yet confirmed the timing of further face-to-face talks, which they were tentatively expected to take place this month in Washington.The Chinese policy committee meeting was held the day before the US implemented a new 15 per cent tariff on about US$110 billion worth of Chinese products, including clothing, food, household goods, Bluetooth ear buds and televisions.
Bilateral tensions have shown no sign of easing, with virtually all Chinese imports into the US set to be subject to tariffs if new levies proposed by US President Donald Trump take effect as scheduled in December.The meeting also took place the day after the release of the official manufacturing purchasing managers’ index (PMI) for August, which indicated sector activity contracted for the fourth successive month. The gauge of sentiment, released by the National Bureau of Statistics on Saturday, stood at 49.5 in August, down from 49.7 in July.
