Chinese finance ministry and central bank on same page on growth after Xi warns of risks to economy
- Ministries announce plans for tax cuts, infrastructure spending, more market liquidity and greater lending
China’s economic ministries are ratcheting up efforts to put stimulus steps to arrest the slowdown into effect as the trade war with the United States takes its toll.
Ministries responded after China reported its lowest annual growth rate in 28 years in 2018, and after President Xi Jinping issued a warning about the dangers facing the world’s second largest economy.
At a meeting with hundreds of provincial and department cadres on Monday, Xi said the country must fend off the risks that “black swans” – unexpected events with major economic and political consequences – and “grey rhinos”, risks that have major effects despite being known in advance, pose for the country’s outlook.
The government then announced a series of measures to spur growth. On Wednesday, the Ministry of Finance said that Beijing will increase spending and plan for large scale tax cuts and reductions in social security fees paid by employers to shore up confidence in the economy. Those details are expected to be finalised at the National People’s Congress in March.
On the same day, the People’s Bank of China (PBOC), China’s central bank, injected 257.5 billion yuan (US$37.9 billion) into the banking system for the first time using its targeted medium-term lending facility to increase loans to struggling firms. Loans from the new facility carry a lower interest rate than other PBOC lending vehicles and banks can take three years to repay them.
The moves came a day after the National Development and Reform Commission (NDRC), the country’s top economic planning agency, demanded that Chinese banks grant more medium and long-term loans to private enterprises, especially companies involved in advanced manufacturing.
“We expect a significant value-added tax cut, fiscal subsidies on home appliances and auto purchases and expansion in fiscal deficit targets will be announced in the coming months,” Zhu Haibin, chief China economist at JPMorgan, wrote in a research note this week.
These measures follow stimulus steps taken last year. In addition to an increase in infrastructure spending, the country cut value-added taxes by 270 billion yuan in 2018 and lowered the individual income tax burden by about 100 billion yuan, the State Taxation Administration said last week.