Growth policies to extend stable trend in 2nd half

In the face of rising uncertainties in the global economic climate, Chinese policymakers have announced a basket of pro-growth policies from targeted lending to tax breaks to carry the current stable economic trend into the second half of this year.

Coordinated fiscal and monetary measures were highlighted on Monday at a meeting of the State Council, China’s Cabinet.

The country will continue with stable macro policies and adopt a combination of fiscal and financial measures to boost domestic demand and bolster support for the real economy, according to a conference chaired by Premier Li Keqiang.

A more proactive fiscal policy will be pursued, and the prudent monetary policy will be neither too tight nor too loose.

The policy stance comes on the heels of the release of the country’s economic indicators in the first six months. GDP growth remained largely solid at 6.8 percent, with retail sales and property investment holding steady.

However, a slight weakening was spotted in June, the last month of the period under review, in industrial output and investment, and worries have been on the rise that escalating trade tensions could bite into the economy in a couple of months.

Xie Yaxuan, an analyst with China Merchants Securities, stressed the significance of the fiscal and monetary synergism to more effectively shore up the real economy. “Given the ongoing deleveraging campaign, the room for credit expansion is limited, which means money should be used where it is needed the most. Meanwhile, fiscal measures are also subject to many restrictive conditions.”

Under the policy synergism, fiscal measures will be more vigorous in tax reductions, and investment and monetary measures will ensure reasonable and sufficient liquidity, which in combination will play a more significant role in serving macroeconomic development, said economist Zhang Lianqi, who is also a national political advisor.

The meeting agreed to roll out a 65-billion-yuan (nearly US$10 billion) tax cut to encourage businesses to spend more on R&D, on top of an initial goal of cutting taxes and fees by 1.1 trillion yuan this year.

Local governments will be allowed to issue 1.35 trillion yuan of special bonds earlier, which will push for more tangible progress on capital-hungry infrastructure projects.

China will also ensure delivery of the state financing guaranty fund, targeting at 140 billion yuan of loans for about 150,000 small and micro firms each year.

On the same day of the meeting, the People’s Bank of China injected 502 billion yuan into the market via the medium-term lending facility.

Some considered the cash injection a sign of a comprehensive monetary loosening, which was refuted by authorities.

China will firmly refrain from resorting to a deluge of strong stimulus policies, the meeting announced. Policy makers have been clear-headed about the bitter results of flooding the economy with massive investment a decade ago — short-term growth increased but so did lurking economic hazards. 

Government regulation will be targeted and well-timed to maintain that the economy performs within a reasonable range, according to the meeting.

“China is correct by ruling out massive stimulus,” Japanese broker Nomura remarked.