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CHINA

Premier Li Keqiang rules out strong stimulus despite weaker growth

Reserve requirement ratio for rural banks will be cut, while tax relief for firms also on cards

PUBLISHED : Wednesday, 16 April, 2014, 11:46pm
UPDATED : Thursday, 17 April, 2014, 7:35am

Premier Li Keqiang has resisted calls for a strong stimulus despite the mainland's economy expanding at its slowest pace since 2012.

The State Council, at a meeting chaired by Li to discuss the economic situation, did not release any stimulus package following the report of a weaker first-quarter economic performance. It did say it would cut the reserve requirement ratio (RRR) for some rural banks and expand the scope of tax relief to private firms that create jobs.

Still, the steps indicated Beijing was ready to fine-tune policies as needed in case of any sharper slide in growth.

The scope of the cut on the required share of funds parked by rural lenders at the central bank for reserves was not detailed in a statement posted on the government's website. It also did not specify how much businesses would benefit from more tax relief - with the policy now extended to 2016.

Nomura International's chief China economist Zhang Zhiwei said the amount of liquidity to be released through the RRR cut would not be significant for the economy.

"Nonetheless, this is another loosening signal from the government, which suggests it is probably more concerned about the economic outlook as the property sector slowed sharply in [the first quarter]," said Zhang. He said the RRR cut may be expanded to the whole banking sector in May or June.

China's gross domestic product grew 7.4 per cent in the first quarter from a year earlier, slightly above the 7.3 per cent consensus, but fell short of the annual official target of 7.5 per cent growth and the 7.7 per cent growth registered in the previous quarter.

Property investment growth slumped to 16.8 per cent year on year in the first quarter from 19.3 per cent in February, dragging fixed-asset investment growth down to 17.6 per cent in the quarter from 17.9 per cent growth in the first two months.

"The downside risks remain large, with growth engines such as investment still quite weak," Everbright Securities chief economist Xu Gao said.

On a brighter note, retail sales and industrial production growth picked up last month.

Growth in power consumption, a leading indicator for business activity, rose 7.2 per cent in March from 4.5 per cent in the first two months of the year.

HSBC economist Qu Hongbin said the economic pattern appeared to be repeating that of last year, when the economy faced downward pressures at the start before recovering in the second half thanks to mini-stimulus measures and then slid again.

Qu said Beijing must accelerate efforts to reform investment and financing mechanisms, lower financing costs, cut taxes and prevent the yuan from further appreciation.

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