China must not resort to massive stimulus, says central bank chief

China must not adopt a massive stimulus package to boost its softening economy, but should instead focus on keeping debt levels sustainable and reducing costs for businesses, said its central bank chief yesterday.

The economy is still on track and there is ample room for policy manoeuvres, he added.

China is in no rush to act, like some other countries that have adopted drastic quantitative easing policies or cut interest rates, said Mr Yi Gang, governor of the People's Bank of China.

"Our monetary policy must remain prudent and this is the course we must continue to follow," he added at a news conference to mark the 70th anniversary of the founding of the People's Republic of China on Oct 1.

Despite China's growth hitting a new low in nearly three decades and a trade war with the United States that continues to drag on, Beijing has held back from rolling out a hefty stimulus programme in favour of a more targeted approach, for fear of exacerbating debt risks.

It has cut banks' reserve ratios, or the amount of cash banks have to hold as reserves, three times this year to inject more money into the economy.

Other central banks have been more aggressive. The European Central Bank recently slashed interest rates to a record low and introduced a new round of quantitative easing, while the US Federal Reserve cut rates twice this year.

China's industrial output growth last month hit a 17-year low, expanding by 4.4 per cent.

Retail sales have also weakened in the latest round of economic data, prompting speculation that Beijing will have to resort to greater stimulus.

State planner vice-chair Ning Jizhe told the news conference that the government will try to maintain steady economic growth by promoting investments and job creation, as well as encouraging consumers to upgrade their purchases, such as by easing restrictions on car buying.

Finance Minister Liu Kun, who was also at the news conference, said tax cuts would be bigger than expected this year, with manufacturers the main beneficiary.

Chinese Premier Li Keqiang announced tax cuts of nearly 2 trillion yuan (S$388 billion) in March, in a bid to boost domestic demand and keep businesses afloat amid the biting trade war.

A version of this article appeared in the print edition of The Straits Times on September 25, 2019, with the headline 'China must not resort to massive stimulus, says central bank chief'. Print Edition | Subscribe