Chinese Vice Premier Liu calls for more measures to support the economy By Reuters

By Zheng Li and David Stanway

SHANGHAI (Reuters) – China's regulators are expected to boost their support for the economy and maintain significant liquidity in the financial system, Deputy Prime Minister Liu He said on Thursday, suggesting that Beijing will soon unveil more policies. to support growth in the face of increasing trade pressure in the United States.

Beijing has many political tools and is able to meet various challenges, said Liu at a financial forum in Shanghai.

Despite a series of supportive measures and a relaxation of policies since last year, the slowdown in the Chinese economy is still struggling to recover, and the l '. Sudden escalation of tensions between the United States and Sino last month raised fears of a real trade war that could trigger an economic crisis. global recession.

Liu's comments come one day after the data shows that credit growth in China was weaker than expected in May, bolstering market expectations that more monetary easing is needed. Factory activity contracted in May and imports fell the most in almost three years, highlighting weak demand.

"At the moment, we are experiencing some external pressures, but these external pressures will help us to strengthen our autonomy in innovation and accelerate development at high speed," said Liu, chief negotiator for the states. United States and China. trade negotiations.

The government will put stronger measures in place to promote reforms and openness, Liu added.

The head of the People's Bank of China, Yi Gang, said last week that there was "enormous" room for maneuver to adjust policies if the trade war worsened.

"We have a lot of leeway for interest rates, the reserve requirement ratio, and also for the monetary and fiscal policy toolkit, I think there is a huge room for maneuver for an adjustment," he said. Yi.

Quoting economists, the China Daily reported on Thursday that China should adjust its money supply and credit supply over the next few weeks, including reducing interest rates or reserve requirement ratios, to cope with "risk of deterioration" if trade tensions intensified.

We were already expecting further cuts in the reserve requirement ratio (RRR) of banks this year, especially after the intensification of the trade dispute last month. Both parties have increased tariffs on their respective products, and Washington is threatening more.

Last month, the PBOC stepped up efforts to increase business loan and business growth by announcing a three-phase reduction in reserve requirements for regional banks to reduce the cost of financing small businesses. and private companies.

He has now reduced the RRR six times since the beginning of 2018.

Unlike previous recessions, however, the central bank has so far been reluctant to reduce benchmark interest rates. Analysts believe that more aggressive measures are being taken, fearing that such a move would risk adding a mountain of debt leftovers from past stimulus fires.

Stronger easing measures could also trigger capital outflows and increase the pressure on the stock, which has slipped nearly 3% against the dollar since trading resumed last month.

Sources told Reuters in February that the PBOC had considered reducing the reference rate as a last resort. But some analysts now estimate that one or more reductions would be likely if the trade dispute went out of control and the US Federal Reserve began to cut rates, giving the PBOC more leeway.

The China Daily, quoting experts, said financial institutions faced tight liquidity in June and that the authorities wanted to accelerate credit growth to meet economic growth targets.

Beijing has set a growth target of about 6 to 6.5 percent for this year, rising from 6.6 percent in 2018, the slowest rate of expansion recorded by the country in nearly 30 percent. years.

Bank of America Merrill Lynch (NYSE) analysts say China's GDP growth could drop to 5.8 percent this year and 5.6 percent in 2020 if the trade war intensified.