New macro policies to assist in recovery

Tools include additional fiscal, monetary, financial stability and trade policies

China will modestly raise its budget deficit ratio, issue special sovereign bonds and bolster the scale of local government bonds as part of a slew of macroeconomic policies to cope with impacts of the COVID-19 pandemic, according to a decision made at a key meeting of the Communist Party of China on Friday.

The meeting of the Political Bureau of the CPC Central Committee, presided over by Xi Jinping, general secretary of the CPC Central Committee, underlined the importance of further macro policy adjustment and better implementation to counter impact from the outbreak.

Proactive fiscal policy must be more effective and prudent monetary policy must be more flexible and accommodating to cut interest rates for loans and maintain reasonably sufficient liquidity, said a statement released after the meeting.

The meeting also called for adequate implementation of various tax and fee cut policies and an acceleration of the issuance and use of special bonds issued by local authorities.

It is important to give play to the guiding role of financial policies, such as re-lending, rediscounting and deferrals of principal repayments and interest repayments of loans, while ensuring a smooth transmission mechanism and alleviating difficulties and high costs faced by businesses in their financing processes, the statement said.

The meeting called for quicker steps to unleash demand from domestic markets, including measures to enable various markets like shopping malls to get back to normal.

It is important to expand consumer consumption, modestly increase public spending and restore consumption at physical stores while maintaining the vitality of online shopping, the statement said.

It added that the accelerated spread of the pandemic overseas has hit the global economy and trade hard, and the country is faced with mounting pressure from the importation of infected cases and fresh challenges in the resumption of industry chains.

The priority for the country is to prevent both the importation of COVID-19 cases and a possible domestic rebound of the outbreak, and to maintain the sustained positive momentum in epidemic containment, the statement said.

It required unremitting measures in epidemic control and prevention in key areas and more targeted treatment for patients in severe condition to improve the recovery rate and lower the mortality rate.

Authorities in Hubei province must step up alignment with relevant provincial authorities to help its residents leave the province for jobs — and stranded travelers in the province return home. Epidemic containment in key areas, such as Beijing, must be further reinforced, the statement said.

The meeting called for stronger care and support for Chinese citizens overseas, saying that diplomatic missions abroad must enhance consular protection, guidance and support in terms of providing protective materials to ensure their health and safety.

It is imperative that authorities closely monitor and analyze the trend of the pandemic, identify and control sources of risk in a precise and speedy manner, step up quarantines at ports and refine border entry procedures, the statement said.

With the COVID-19 outbreak bringing fresh difficulties and challenges, more arduous efforts are needed in poverty alleviation, the statement said.

China has policy space to step up its efforts in promoting economic recovery and curbing slowdown risks from the novel coronavirus pneumonia shock, according to analysts. That enables the nation to enhance its role in supporting international coordination to overcome the global health crisis, they said.

Additional fiscal, monetary, financial stability and trade policies could be adopted by Chinese authorities to lessen negative impacts on households and businesses as the fastspreading virus drives the global economy toward a possible recession, experts said after the G20 Extraordinary Leaders’ Summit on COVID-19 on Thursday night. It was the first G20 summit in the form of a videoconference.

Chinese policymakers determined on Friday to raise the fiscal deficit ratio this year, to issue special central government bonds and enlarge the scale of local government special bonds. On the monetary policy front, the lending rates will continue to decline and the liquidity will remain reasonably ample.

The G20 members committed to “do whatever it takes and to use all available policy tools” to minimize the economic and social damage from the pandemic, according to a statement from the summit.

In a speech during the summit, President Xi Jinping called on G20 members to enhance international macroeconomic policy coordination to counteract negative impacts and prevent the world economy from falling into recession.

“China will continue to pursue a proactive fiscal policy and prudent monetary policy,” said Xi, adding that strong and effective fiscal and monetary policies are needed across the globe to keep exchange rates basically stable, and measures are required to better coordinate financial regulation to keep global financial markets stable.

He also called on all G20 members to keep global industrial and supply chains stable, as well as cutting tariffs, removing barriers and facilitating the unfettered flow of trade.

Justin Yifu Lin, dean of the Institute of New Structural Economics at Peking University, said the Chinese government “should adopt a proactive monetary policy to stabilize the financial system and increase credit to help companies”, taking advantage of the policy space gained from the supply-side structural reform.

“(The government) should leverage proactive financial policy to facilitate new types of infrastructure construction, provide necessary support for low-income and poor families affected by the epidemic and expand domestic demand,” Lin wrote in an article published by the institute on Thursday.

China’s central bank may continue to lower interest rates — not because many of its global counterparts have taken emergency rate cuts or reopened quantitative easing — but to make decisions depending on the domestic situation, or “to follow its own plan”, said Yan Se, a professor at the Guanghua School of Management of Peking University.

“We expected stronger fiscal actions to promote production resumption, as the credit demand from households and businesses is still weak.” But, he added, “Too much aggressive monetary easing without real credit demand will be ineffective and harmful.”

Lian Ping, former chief economist at the Bank of Communications, said the government is likely to launch a package of economic supportive policies at the end of March or in early April.

The G20 is injecting over $5 trillion into the global economy as part of targeted fiscal policies, economic measures and guarantee plans to counteract the social, economic and financial impacts of the virus outbreak, the statement said.

China joined the Asian stock rallies on Friday. The CSI 300 was up by 0.32 percent and the benchmark Shanghai Composite Index added 0.26 percent at the close. US stocks recorded the first three-day rally since February on Thursday. The benchmark S&P 500 index closed up 6.38 percent and the Nasdaq rose 5.6 percent. But early Friday, US stocks fell sharply.

Moody’s, a global rating agency, revised its forecast for G20 real GDP on Thursday to contract by 0.5 percent this year, followed by a pickup to 3.2 percent growth in 2021. In November, before the emergence of COVID-19, the agency expected G20 economies to grow by 2.6 percent in 2020.

“We expect policy measures to continue to grow and deepen, as the consequences of the shock in terms of depth and duration become clearer. Nevertheless, downside risks to growth remain sizable,” said Madhavi Bokil, vice-president and senior researcher at Moody’s.