China Signals More Stimulus After Top Meeting to Assess Economy

20 Jan 2016 | Author: | No comments yet »

China Signals More Stimulus After Top Meeting to Assess Economy.

China’s leaders signaled they will take further steps to support growth, including widening the fiscal deficit and stimulating the housing market, to put a floor under the economy’s slowdown. Monetary policy must be more “flexible” and fiscal policy more “forceful” as leaders create “appropriate monetary conditions for structural reforms,” according to statements released at the end of the government’s Central Economic Work Conference by the official Xinhua News Agency on Monday. While the leadership also endorsed structural reforms and reining in China’s increasing reliance on credit, the macroeconomic policy statements indicated concern about letting the economy’s expansion slow too much. The government’s annual growth target is typically set at the gathering; President Xi Jinping has said the nation must meet a minimum pace of 6.5 percent. “They have a challenge to restore their own credibility, and to that end we’ll see concerted easing efforts in order to try to turn the economy around, at least in the short term,” said Mark Williams, the chief China economist at Capital Economics Ltd. in London. “It’s clear that policy in a broad sense is still being eased, and it’s reasonable to expect looser fiscal policy next year and also looser monetary policy.” Officials also pledged assistance for rural residents seeking to buy homes in urban areas and encouraged cheaper residential prices, which would help shrink a glut of unsold properties. Monetary policy flexibility has been a theme in recent months as China’s central bank moves toward creating what it calls an interest-rate corridor to guide borrowing costs, away from the old model of setting lending and deposit rates directly.

People’s Bank of China officials including research bureau chief economist Ma Jun have mapped out such moves, including setting the seven-day Standing Lending Facility interest rate as the ceiling and interest on excess bank reserves as a floor for rates. The PBOC recently surveyed banks on the possibility and potential impact of removing its benchmark deposit and lending rates, people familiar with the matter said Monday. The survey won’t necessarily result in the immediate removal of benchmark rates, according to the people, who asked not to be identified as the matter hasn’t been made public yet. Communist Party officials in their look toward 2016 also affirmed they will step up supply-side reforms such as dealing with overcapacity, Xinhua said Monday.

Beef up agricultural production to ensure food security and stable income growth for farmers by modernizing infrastructure and technology to boost capability and quality. The case for additional stimulus has been strengthened by capital outflows after an August currency devaluation, some weaker-than-forecast economic data and the aftermath of a stock-market slide that started in June. Fiscal spending jumped 25.9 percent from a year earlier to 1.61 trillion yuan ($249 billion), while revenue rose 11.4 percent to 1.11 trillion yuan, the finance ministry said in a statement last week. Robust consumption and strength in services hasn’t proved enough to offset the drag from slumping old-economy sectors including steel, coal and cement. President Xi said Nov. 3 that average annual growth must be no lower than 6.5 percent in the next five years to realize China’s goal of doubling 2010 output and per capita income by 2020.

The latest round of economic data showed signs the economy is stabilizing after policy makers unleashed several rounds of monetary and fiscal stimulus.

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