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Fiscal stimulus to help achieve economic goals

January 16,2019

   
   

China has signaled more economic stimulus measures in the near term.

The world’s second-largest economy will aim to achieve “a good start” in the first quarter, the National Development and Reform Commission said on Tuesday.

Stabilizing employment is the government’s top priority, NDRC Vice Chairman Lian Weiliang said when briefing reporters on the measures in store following December’s central economic work conference.

China will speed up investment projects and local government bond issuance, but will not resort to “flood-like” stimulus, Lian said.

Central bank and finance ministry officials gave similar assurances.

This year, China will step up fiscal expenditure and implement larger tax and fee cuts. The cuts will focus on reducing burdens for small firms and manufacturers.

The central bank, in a separate statement issued at the press conference, said it will maintain prudent monetary policy with “appropriate tightness and looseness.”

Monetary policy will be made more forward-looking, flexible and targeted, the People’s Bank of China said.

But a prudent monetary policy does not mean that there will be no changes, Deputy Governor Zhu Hexin said.

Apart for cutting the reserve requirement ratios for commercial banks, the central bank has also increasingly turned to open market operations, in particular the medium-term lending facility, or MLF, to maintain a generous pool of funding. Cutting benchmark interest rates may be the last resort as that could weigh on the yuan and fuel debt risks, analysts say.

When asked if the central bank should cut benchmark rates, Zhu said existing monetary policy measures should be improved.

“Regarding the question of interest rate cuts, people are paying more attention to it,” he said. “Our current monetary policy, including overall policy — reserve requirement ratio cuts and medium-term lending facility — helps us adapt to the overall economic environment and price levels.

“Overall, monetary policy is gradually taking effect in the economy. We should look to improve our existing policies and make dynamic assessments on that basis.”

Despite concerns that policy easing will pressure the yuan, central bank officials said they were confident the exchange rate could be kept stable.

“Our exchange rate regime is a floating one based on market supply and demand,” Zhu said. “We have confidence on this aspect, considering our economy and our foreign exchange reserves.”

On Monday, Premier Li Keqiang said China achieved its key 2018 economic targets, which were “hard-won,” and seeks a strong start in the first quarter to help meet this year’s goals.

China has lowered the level of reserves that commercial banks need to set aside for the fifth time in a year to spur lending, particularly to small and medium-sized firms.

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