Strong stimulus steps needed

State media: China must prepare ‘more powerful’ steps to support economy

BEIJING: China should prepare ”more powerful” policy measures, possibly including a large-scale stimulus package, to prevent its economy from stalling as trade frictions with the United States persist, a state-backed tabloid said in a commentary.

Over the weekend, the People’s Bank of China (PBOC) announced its fourth cut in banks’ reserve requirement ratios (RRRs) this year to further ease credit conditions and support businesses, including exporters hit by China’s intensifying trade war with the US.

Economists predicted more RRR cuts ahead, though China has repeatedly said it will not resort to massive stimulus, concerned about introducing excessive leverage into the financial system.

Chinese corporate firms are still working to lower their debt levels following Beijing’s 4 trillion yuan (US$577bil) stimulus package a decade ago.

“Depending on the economic situation, it should prepare more powerful monetary and fiscal policy tools, possibly including a largescale stimulus package,” the commentary in Global Times said.

“Compared with the RRR level of 9.5% in 2007, there is still room for further reduction in the current ratios of 14.5% for large financial institutions and 12.5% for small and medium-sized lenders.”

The Global Times, in a similar commentary on Monday, said China must take strong stimulus steps to support growth, with the country in a ”critical” period of stabilising its economy.

The views in the newspaper, which is run by the ruling Communist Party’s official People’s Daily, do not necessarily reflect Chinese government policy.

“Lowering the RRR is good, but it doesn’t cure all illnesses,” Financial News, a newspaper run by the central bank, said in an editorial yesterday.

After all, RRR cuts are meant to ”guide” liquidity to targeted recipients and are less about directly producing an effect, according to the editorial.

RRRs are still relatively high, and some economists say there is room for more cuts.

Currently, credit growth is appropriate and very supportive for the economy and smaller businesses, PBOC Governor Yi Gang told Chinese financial magazine Caixin in an interview in Bali, Indonesia.

China can realise its growth target set at the start of the year, Yi said.

In PBOC’s RRR cut announcement on Sunday, the central bank said it would continue to take the necessary measures to stabilise market expectations while keeping monetary policy prudent and neutral.

Deeper monetary easing could pile more pressure on the Chinese yuan, which has lost more than 5% of its value against the dollar this year.

The yuan is currently just a few pips away from the psychologically key 7.000 level against the US currency.

The yuan’s drop has drawn concern from the US Treasury Department. Treasury Secretary Steven Mnuchin, in an interview with the Financial Times this week, warned China not to engage in competitive devaluations of the yuan and noted the currency has fallen ”significantly” this year.

China says it has no intention of boosting its exports by a competitive devaluation of its currency or using the yuan exchange rate as a weapon in trade disputes.

International Monetary Fund Managing Director Christine Lagarde said yesterday that she believes China is trying to maintain growth and stability amid a trade conflict with the US, but added that it is a ”complicated” balancing act. — Reuters

the RRR is good, but it doesn’t cure all illnesses. Financial News