What China said about economic policy at its parliamentary meeting

Image: REUTERS/Thomas Peter
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China’s annual National People’s Congress (NPC) kicked off on Tuesday with Premier Li Keqiang’s presentation of the government work report, in which he announced a lower economic growth target of 6.0-6.5 percent this year.

Li also pledged billions of dollars of cuts to taxes and fees to shore up an economy growing at its slowest pace in almost 30 years.

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Here is an overview of Li’s comments on monetary policy, fiscal policy, the yuan, interest rates and bonds:

Monetary policy

Li said China’s monetary policy would be prudent and “neither too tight nor too loose”, and that the government would not resort to a flood of liquidity. He said China will use various monetary policy tools, enhance channels for policy transmission and maintain reasonably ample liquidity.

Growth targets for M2 money supply, which includes cash in circulation and deposits, and total social financing this year would be in line with nominal GDP growth, Li said.

Fiscal policy

China will step up its proactive fiscal policy, setting a budget deficit of 2.8 percent of gross domestic product (GDP), up from 2018’s 2.6 percent target.

The Ministry of Finance said fiscal revenue will be increased by 5 percent and spending by 6.5 percent.

For the full year, China plans to cut corporate burdens by nearly 2 trillion yuan ($298.2 billion). Li said the government will reduce the value-added tax (VAT) for the manufacturing sector to 13 percent from 16 percent. The VAT for the transport and construction sectors will be cut to 9 percent from 10 percent.

Yuan

China will improve the formation mechanism of the yuan’s exchange rate and keep the currency basically stable at reasonable levels, Li said.

The Chinese central bank sets a daily mid-point in the country’s onshore foreign exchange market. The yuan is allowed to trade no more than 2 percentage points above or below that level against the dollar, to control volatility.

The yuan is also traded offshore, mostly in Hong Kong, where there is no trading band.

A more detailed report released on Tuesday by the National Development and Reform Commission (NDRC) said China will also increase the yuan’s exchange rate flexibility and strengthen regulations on cross-border capital flows in 2019.

The state planner said it will make efforts to keep equity, bond and currency markets stable, and will react to abnormal fluctuations in a timely manner to prevent and fend off financial risks.

Interest rates

Li pledged to deepen market-oriented reforms in interest rates and to lower borrowing costs.

China will use policy tools such as reserve requirement ratios and interest rates in a timely manner to guide financial institutions to expand credit and lower loan costs to support the real economy.

China to slash taxes, boost lending to prop up slowing economy

The NDRC said it will keep market rates reasonably stable.

Source: www.weforum.org