Nation has space to boost economic recovery

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

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.