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The measures announced Monday night following a meeting of the State Council in Beijing, intended to encourage research spending to invest in infrastructure, aim to provide a more flexible response to "external uncertainties" than expected. the fiscal tightening already in place for this year.
Fiscal policy should now be "more proactive" and better coordinated with financial policy, according to the statement – a signal that the Ministry of Finance will step up its contribution to supporting growth alongside the central bank. The People's Bank of China has reduced reserve ratios three times this year and unveiled a series of measures for the private sector and small businesses.
The economic impact of reciprocal tariffs on trade with the United States not yet clear and there is no end to the trade dispute in sight, policy makers are pulling multiple levers to stabilize the economy. For now, this is done without resorting to large-scale stimulus measures or widespread monetary policy easing as policymakers remain engaged in a multi-year campaign to curb debt growth.
"I do not think there is a significant easing or policy reversal, it's more of a fine tuning," said Larry Hu, chief of the board. Chinese economy to Macquarie Securities in Hong Kong. "The makers are sewing patches, offsetting the fast and fierce deleveraging dynamics."
The onshore yuan fell 0.65% to 6.8295 per dollar, its lowest level since June 2017. Stocks in Shanghai and Hong Kong rose.
Nomura Holdings Inc. said the statement signals "the start of the fiscal stimulus," Guotai Junan Securities Co. said it "confirmed the easing bias of monetary policy" and Deutsche Bank AG considers it "as a confirmation of policy direction" Standard Chartered Bank Plc said that policies would be slightly more flexible to support domestic demand, but that there is no intention of Introduce strong stimulus measures.
The meeting reiterated that China would strike a balance between easing and tightening and maintain "reasonable and sufficient" liquidity. She also promised to improve the transmission of monetary policy, an expression the PBOC had abandoned since a campaign to curb credit growth that began in late 2016.
Although there has been no official change in the central bank's "cautious and neutral" policy, the measures announced in recent days indicate that the authorities are taking a supportive stance in the trade dispute with the United States. for banks and the publication of new guidelines for the badet management industry.
The economy grew 6.7% in the second quarter, the slowest expansion since 2016. The expansion is expected to slow this year to 6.5%, in line with the official target.
The meeting also called for faster investment growth and regular funding for local investment projects. Policymakers pointed out that they would refrain from using stimulus measures to flood the economy.
"It is now clear that Beijing has completely changed its political stance from the initial deleveraging to fiscal stimulus that will be supported by monetary easing and credit," said Lu Ting, Chief Economist at Nomura Holdings Inc. in Hong Kong. .
The package of measures included an additional tax cut of 65 billion yuan ($ 9.6 billion) for companies with R & D spending, accelerating the sales of special obligations not budgeted to facilitate financing of local infrastructure and to ease restrictions on banks. financial obligations for small businesses.
Private investment must be boosted by introducing projects in transport, gas and telecommunications, local governments will be pushed to make better use of untapped budget funds and policies to attract foreign companies to reinvest will be improved. opening.
Policies will also seek to guide financial institutions to ensure reasonable funding for local government funding vehicles so that the necessary projects are not delayed, to facilitate the construction and planning of a number of major projects that will meet development objectives. accelerate basic research and basic technological breakthroughs.
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