China’s top economic policymakers promised more tax cuts and increased funding for infrastructure at the conclusion of a key annual planning meeting on Friday, as US tariffs and weakening domestic consumption add to downward pressure on Chinese growth.
China has already enacted tax cuts and approved new infrastructure projects in recent months, including $50bn in subway and light rail projects in Shanghai and Hangzhou this week.
But Friday’s statement at the conclusion of the three-day Central Economic Work Conference pledged “even larger scale” tax cuts and “rather large” increases in bond sales to fund infrastructure, according to the official Xinhua news agency. Policymakers left the official “prudent” monetary policy stance unchanged but signalled de facto easing by calling for “appropriate” looseness.
“The statement shows that policymakers see the Chinese economy facing bigger downward pressures and an increasingly challenging external environment,” said Tao Wang, chief China economist at UBS in Hong Kong. “As a response, the work conference sent more and more specific easing signals, and said they want to push harder on reforms and support the private sector.”
Pledges on long-awaited reforms include plans to change the household registration system, which restricts labour mobility, and proposals to relax market-entry barriers for foreign investors, although the leadership has made both such commitments before.
The work conference is held every December to map out financial and economic goals for the coming year. It is one of a series of major party and government meetings this month that many observers had hoped would see Chinese president Xi Jinping signal a new round of bold economic and financial reforms.
But in a speech earlier this week at the first of these meetings — a gathering to mark the 40th anniversary of the “reform and opening” that fuelled China’s four-decade economic resurgence — Mr Xi struck a defiant and conservative tone. A full meeting of the party’s Central Committee, that should already have been held according to past political calendars, may also be held in coming days. The delay has prompted speculation that there is a lack of consensus about how to respond to China’s mounting challenges.
The party is struggling to bolster business sentiment, especially in the private sector, as economic growth slows and US President Donald Trump’s trade war with China enters its seventh month.
In a sign of the tense nerves, the cabinet’s top financial policy body issued a terse statement on Friday afternoon in advance of the economic policymakers’ announcement denying earlier market rumours that their work conference would not announce new tax cuts. China’s benchmark CSI 300 index has lost 25 per cent this year.
Last week, Yi Gang, governor of the People’s Bank of China, said authorities would slow the pace of a debt-control campaign that has contributed to the current slowdown.
But Mr Yi’s room for easing is constrained by an ongoing campaign to rein in risky financial practices and also the narrowing differential between the PBoC and the Federal Reserve’s benchmark interest rates, which could exacerbate devaluation pressure on the renminbi and spark capital outflows.
The PBoC kept its seven-day reverse repo rate at 2.55 per cent on Thursday, choosing not to react to the Fed’s latest 25 basis point increase in its benchmark rate. The PBoC has instead focused on more targeted easing measures.
On Wednesday China’s central bank announced that it would create a “targeted medium-term lending facility” that banks could tap specifically to support private sector businesses. Banks can borrow from the TMLF at 3.15 per cent, compared with the 3.3 per cent charged by the PBoC’s main medium-term lending facility.
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