China vowed to strengthen policy support and speed up government spending as the economy’s recovery comes under strain.
(Bloomberg) — China vowed to strengthen policy support and speed up government spending as the economy’s recovery comes under strain.
Finance Minister Liu Kun and Zheng Shanjie, chairman of the National Development and Reform Commission, made the pledges in reports to the country’s legislature on Monday, according to the official Xinhua News Agency.
The comments were largely a repeat of Beijing’s policy stance, with Zheng reiterating the government would beef up counter-cyclical measures and policy reserves, and strengthen the coordination of various policies in the second half of this year.
Zheng highlighted China’s economic challenges, saying growth momentum is not strong, the foundation for sustainable recovery is not solid, and the environment is “full of uncertainties,” according to Xinhua.
The comments come ahead of an expected monthly meeting of the Communist Party’s Politburo, made up of the ruling party’s 24 most senior officials. The Politburo usually sets the dates for important party conferences at its August meeting, although it can’t be ruled out that officials could also discuss more policy support for the economy given mounting concerns over growth.
The next key meeting will likely be the third plenary of the Communist Party’s Central Committee, which takes place every five years and where major economic reforms for the long term will be charted.
Bond Sales
With the central bank already cutting interest rates twice this year and regulators taking steps to ease property restrictions, focus is shifting to fiscal measures to support the recovery.
Liu said authorities will ensure proactive fiscal policy will be more forceful and effective, and will “reasonably accelerate” fiscal spending. The aim is to ensure local governments use up this year’s quota of new special bonds, which are mainly used to finance infrastructure investment, by the end of September, and that the funds are utilized by the end of October, he said.
Those deadlines for bond sales were previously reported by Bloomberg News.
Liu said the ministry will study the expansion of industries where the special bonds can be invested in, and strengthen the coordination between fiscal and monetary policies.
Economists have been downgrading their growth forecasts for China closer to the government’s target of around 5% for this year following a string of recent reports showing a slump in exports, weak consumer spending, and a worsening property crisis.
Insufficient fiscal support was a key reason behind China’s slowing growth since April in addition to the housing market slump, Wang Tao, chief China economist at UBS Group AG, said at a briefing on Tuesday. She estimated the contraction in fiscal spending in the first half of the year was equivalent to 1 percentage point of gross domestic product.
Read More: China Shrinks Fiscal Deficit by Third Even as Economy Cools
“Fiscal policy will be more expansionary in the second half than in the first half for sure,” she said. The stimulus could be as big as 2 percentage points of GDP, although a lot of uncertainties remain, she added.
Some government spending on infrastructure has been rising, partly helping to offset the slump in the property market, and boosting commodity prices like iron ore. Chinese central government spending in railways jumped this year while demand from other sectors like power machinery, autos, shipping and home appliances remained solid.
–With assistance from Tom Hancock.
(Updates with comments from economist.)
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