China’s top leaders said they will exercise more flexibility in monetary and fiscal policy, signaling a greater focus on reviving an economy pummeled by the virus outbreak.
Fiscal policy will be more proactive, while construction projects will be accelerated, according to a statement issued after a Politburo meeting chaired by President Xi Jinping on Feb. 21.
The central bank will free up part of the reserves of some commercial lenders to unleash long-term funding to the economy, and consider adjusting the benchmark deposit rate at an appropriate time, Deputy Governor Liu Guoqiang said in a separate statement.
The coronavirus has forced officials to keep millions of people at home and away from work, impacting businesses — both big and small — which have suspended or limited operations. The epidemic is weighing on an economy that was already growing at its slowest in three decades, with ratings company S&P Global warning that a prolonged public health crisis could cause the bad loans ratio in China’s banking system to more than triple.
Friday’s Politburo meeting signals an escalation in the easing bias of both monetary and fiscal policy, compared with the stance that was endorsed at a top-level economic meeting in December. Such a shift could pave the way for more tax cuts and monetary easing measures.
The People’s Bank of China will soon conduct a financial inclusion review on commercial banks and offer qualified lenders discounts on their reserve ratios, Deputy Governor Liu said on the central bank’s WeChat account on Saturday. Authorities will keep liquidity sufficient and continue to use targeted re-lending and re-discounting funding to help small firms, he said.
Liu also repeated an earlier pledge that the central bank will consider economic and inflation pressures when adjusting the benchmark deposit rate at an appropriate time. China slashed a range of policy rates this month to blunt the economic impact of the virus outbreak.
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Politburo members pledged to step up efforts to support industries that are involved in vaccines, bio-medicines and medical equipment, as well as 5G and industrial networks, according to the statement. Officials also urged local governments to shift toward restoring business operations and “actively” helping migrants return to work.
“The Politburo employed a more supportive tone in its official release, with stronger and more explicit wording,” Bloomberg economists Qian Wan and David Xu wrote on Saturday. “This reinforces our view that more stimulus is underway to offset the blow to economic activity from the coronavirus.”
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On the fiscal side, the meeting also called for better use of political financing, signaling a larger role for state-owned banks in driving public investment, the economists wrote.
— With assistance by Evelyn Yu, and Yinan Zhao
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