Beijing • China’s leadership signalled that further stimulus measures are being planned, as disappointing economic data showed that the current piecemeal approach isn’t working.
The nation’s economic situation is changing, downward pressure is increasing and the government needs to take timely steps to counter this, according to a statement from a Politburo meeting yesterday chaired by President Xi Jinping (picture).
The signal of increasing urgency came just hours after Purchasing Managers’ Index reports showed an across-the-board deterioration that risks spilling into a broader drag on global growth. The world’s second-largest economy is being damaged by its trade war with the US and a domestic debt cleanup.
With those pressing constraints, officials have added modest policy support so far, ranging from tax cuts to regulatory relief, rather than repeating the fiscal firepower seen after a previous slowdown. Investors seem unpersuaded by the dripfeed approach with the yuan hovering around a decade low and stocks sliding.
“Accepting slower growth has long been a challenge for Beijing, but now the rate of slowdown is firmly out of the comfort zone,” said Katrina Ell, an economist at Moody’s Analytics in Sydney. “In recent years, the balancing act has been addressing risks in the financial system against pressure to stabilise economic growth. It appears the latter is again more of a priority.”
China’s leaders from Xi on down had politically committed to avoiding a “flood” of stimulus, and a multi-year campaign to curb the rate of debt expansion appeared to be paused, not scrapped. Xi’s right-hand man on the economy, Liu He, has long advocated a shift away from credit-fuelled growth at all costs and senior officials continue to warn of the dangers of excess debt, even as they seek to channel more money to cash-strapped private businesses.
“The leadership is paying great attention to the problems, and will be more preemptive and take action in a timely manner,” according to the statement yesterday. The Politburo reiterated that China will maintain a proactive fiscal policy and a prudent monetary policy, while trying to find solutions to help private businesses.
Earlier yesterday, data from around the region suggested that, aside from the US, the global economy is heading into a difficult period. Industrial output for September in South Korea and Japan came in below estimates, as did third-quarter output in Taiwan.
“The spring of 2019 will be the real difficult time for China as multiple factors such as trade tension, slower sales of durable goods and the end of a property boom in lower-tier cities weigh on growth,” Lu Ting, chief China economist at Nomura International Ltd in Hong Kong, said after the announcement. “It’ll be a test if China can sustain growth of around 6.5%. Policymakers are likely to further cut taxes and ease property purchase controls in bigger cities to lift the economy.”
The government and central bank have already this month introduced a raft of measures to stabilise sentiment, adding to steps to boost liquidity in the financial system, tax deductions for households and targeted measures aimed at helping exporters. Those measures have yet to have much effect.
The leadership also emphasised implementing policies that have already been announced, and said China will continue to “actively and effectively” utilise foreign investment and defend foreign companies’ legitimate rights. — Bloomberg