China signals more stimulus as economic slowdown deepens

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China signals more stimulus as economic slowdown deepens
Workers prepare a container at the port in Qingdao, China's eastern Shandong province.

beijing - Government pledges to ease funding problems for small, private firms

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Published: Tue 15 Jan 2019, 7:13 PM

Last updated: Tue 15 Jan 2019, 9:15 PM

China on Tuesday signalled more stimulus measures in the near term as a tariff war with the United States took a heavy toll on its trade sector and raised the risk of a sharper economic slowdown.

The world's second-largest economy will aim to achieve "a good start" in the first quarter, the National Development and Reform Commission (NDRC) said in a statement, indicating the government is ready to counter rising pressure. Central bank and finance ministry officials gave similar assurances.

Surprising contractions in China's December trade and factory activity have stirred speculation over whether Beijing needs to switch to more forceful stimulus measures, though most analysts believe the government is wary of steps that could heighten debt risks and weaken the yuan.

Data on Tuesday showed credit growth remains stubbornly weak, with several key gauges hovering around record lows despite months of policy easing.

"Further economic stimulus measures will be needed. The authorities seem to be taking their time to deliver this, perhaps chastened by the overkill of their stimulus in the financial crisis," ING economists said in a note to client.

"The eventual package may be very substantial."

Some analysts believe China could deliver 2 trillion yuan ($296.21 billion) worth of cuts in taxes and fees, and allow local governments to issue another 2 trillion yuan in special bonds largely used to fund key projects. Most, however, expect the fresh stimulus will take months to start feeding through the world's second-largest economy, with a turnaround not expected till spring or summer.

China's growth slowed in 2018 as a campaign to reduce a mountain of debt and crackdown on riskier lending practices pushed up borrowing costs, dampening investment and hurting domestic demand.

As the trade war with the United States escalated last year and hit exports, global financial markets went into a tailspin on worries about a sharper China slowdown, though many analysts believe an economic hard landing is unlikely.

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, according to state television on Monday.

Sources told Reuters last week that Beijing was planning to lower its growth target to 6-6.5 per cent this year after an expected 6.6 per cent in 2018, the slowest pace in 28 years.

The proposed target, to be unveiled at the annual parliamentary session in March, was endorsed by top leaders at the annual closed-door Central Economic Work Conference in mid-December, the sources told Reuters.

Annual growth of about 6.2 per cent is needed this year and in 2020 to meet the ruling Communist Party's longstanding goal of doubling gross domestic product and incomes in the decade to 2020, and to turn China into a "modestly prosperous" nation.

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. Beijing has also cut taxes and fees, and stepped up infrastructure investment to shore up the economy.

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 finance ministry said in a statement on Tuesday.

But government efforts to channel more funds to the struggling private sector are facing big hurdles: banks are wary of more bad debts amid the long regulatory crackdown; and, many business are in no mood to make new investments in the face of faltering sales.

Stabilising employment is the government's top priority, NDRC vice-chairman Lian Weiliang said on Tuesday, briefing reporters on the measures that are in the works following December's economic work conference. - Reuters

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