Chinese regulators should step up support for the economy and keep ample liquidity in the financial system, Chinese Vice Premier Liu He (劉鶴) said yesterday, suggesting that Beijing would soon unveil more policies to bolster growth amid rising trade pressure from the US.
Beijing has plenty of policy tools and is capable of dealing with various challenges, Liu said at a financial forum in Shanghai.
Despite a slew of support measures and policy easing since last year, China’s cooling economy is still struggling to regain firm footing, and last month’s sudden escalation in US-China tensions has raised fears of a full-blown trade war that could trigger a global recession.
Liu’s comments came a day after data showed that China’s credit growth was weaker than expected for last month, reinforcing market expectations that more monetary easing is needed.
Factory activity contracted last month and imports fell the most in nearly three years, highlighting soft demand.
“At present, we do have some external pressures, but those external pressures will help us boost our self-reliance in innovation and accelerate the pace of high-speed development,” said Liu, who is also the lead negotiator in the US-China trade talks.
The government would roll out more strong measures to promote reforms and opening up, he added.
Earlier yesterday, the China Daily, citing economists, said that China is expected to adjust money and credit supply in the coming weeks, including cuts to interest rates or reserve ratio requirements, to counter “downside risks” if trade tensions escalate.
Further cuts in banks’ reserve requirement ratios (RRR) were already expected this year, especially after the trade conflict escalated last month. Both sides hiked tariffs on each other’s goods and Washington is threatening more.
Last month, the People’s Bank of China stepped up efforts to increase loan growth and business activity, announcing a three-phase cut in regional banks’ reserve requirements to reduce financing costs for small and private companies.
It has now cut RRR six times since early last year, and has also guided short-term interest rates lower.
However, unlike previous downturns, the central bank has been reluctant to cut benchmark interest rates so far.
Analysts say it has held off on more aggressive measures due to concerns that such a move could risk adding a mountain of debt leftover from past stimulus sprees.
More forceful easing could also trigger capital outflows and add pressure on the Chinese yuan.
The yuan has fallen nearly 3 percent since the trade flare-up last month and is nearing the closely watched 7 yuan per US dollar mark, a level last seen during the global financial crisis a decade ago.
“China is capable and confident of maintaining stable operation of the foreign-exchange market and [keeping] the yuan basically stable at reasonable and balanced levels,” Chinese State Administration of Foreign Exchange Director Pan Gongsheng (潘功勝) said at the forum.
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