China to unleash more stimulus to boost economy

Priority is to stabilise growth amid downward pressures: Analysts

China is pledging more support for private businesses and looking to roll out more stimulus measures next year as growth continues to slow sharply in the world's No. 2 economy.

The measures include deeper cuts in tax and fees as well as steps to ensure sufficient liquidity in the market, said a statement issued by the official Xinhua news agency yesterday, at the close of an annual meeting that sets economic targets for the new year.

All eyes have been on what measures top Chinese leaders will unveil after the three-day Central Economic Work Conference to tackle weakening consumption and industrial production.

The national economy slowed to 6.5 per cent in the third quarter, and poor economic data last month suggested that the downward trend is set to continue.

China will coordinate its economic and social policies to "ensure that the economy operates in a reasonable range", said the statement.

Analysts say that overall, the statement indicates Chinese policymakers' priority to stabilise growth in the first half of next year amid bigger downward pressures on the economy domestically, as well as a more challenging external environment as the trade war with the United States drags on.

"This is the most pressing issue at hand," said Standard Chartered China economist Li Wei.

Dr Wang Tao, chief China economist of UBS Bank, also noted that the meeting has sent more specific easing signals as a response.

"(It) said they want to push harder on reforms and supporting the private sector," she told Bloomberg.

FLEXIBLE MOVE

If the trade war escalates, the local governments can raise more bonds. And if tensions ease, they can choose not to fulfil the quota.

STANDARD CHARTERED CHINA ECONOMIST LI WEI

According to the statement, Beijing will increase the quota of local governments' special bond issuance by a "relatively large scale" next year, which means local governments will have more funding to ramp up infrastructure spending to boost growth.

This is a preventive measure that has more flexibility built in, said Mr Li. "If the trade war escalates, the local governments can raise more bonds. And if tensions ease, they can choose not to fulfil the quota," he said.

 
 

The statement also noted that China needs to create an "institutional environment for fair competition" and encourage small and medium-sized enterprises to speed up their growth.

Separately, it also mentioned the need to speed up state-owned enterprise (SOE) reforms, and "to adhere to the principle of separation of government and enterprise, separation of government and capital, and fair competition".

Mr Li thinks this seems to be a response to the main area of contention between China and the US in the trade war - China's industrial policies of subsidising and protecting the SOEs, thereby creating an unfair advantage for these otherwise uncompetitive enterprises.

"This has already been mentioned before, so we will be interested to see what are the actual policies surrounding this and whether they can be effectively implemented," he added.

A version of this article appeared in the print edition of The Straits Times on December 22, 2018, with the headline 'China to unleash more stimulus to boost economy'. Print Edition | Subscribe