China set to unleash trillions of yuan to revive economy

BEIJING: China is set to unleash trillions of yuan of fiscal stimulus to revive an economy expected to shrink for the first time in four decades amid the coronavirus pandemic, while a planned growth target is likely to be cut, according to four policy sources.

The ramped-up spending will aim to spur infrastructure investment, backed by as much as 2.8 trillion yuan (RM1.74 trillion) of local government special bonds, said the sources. The national budget deficit ratio could rise to record levels, they added.

Beijing is likely to have to lower its economic growth target for 2020 given the prolonged impact of the pandemic, according to the sources involved in internal policy discussions who declined to be named due to the sensitivity of the matter.

Chinese leaders are considering proposals from advisers to cut it to as low as 5% from the original target of around 6% agreed in December, they added.

The National Development and Reform Commission, the top state planner, the finance ministry and the central bank did not immediately respond to Reuters’ request for comment.

China’s growth hit a near 30-year low of 6.1% in 2019, and the landscape has darkened significantly as the virus outbreak and strict containment have severely disrupted businesses.

“When the economy is suffering a big shock, it’s necessary to step up fiscal policy support given that monetary policy will have limited effectiveness,” a policy source said.

Higher spending could push the 2020 budget deficit ratio to as high as 3.5% – up from last year’s 2.8%, the sources said.

The government has long kept a 3% ceiling on the annual budget deficit ratio, which was last reached in 2017, and a level of 3.5% would be the highest on record, analysts said. – Reuters