Chinese policymakers are moving to shore up economic growth

STR/AFP/Getty ImagesNothing like some reinforced bar to keep things stable.
  • Chinese policymakers are taking steps to support economic growth, announcing additional corporate tax cuts and the need to speed up infrastructure spending.
  • China’s economy has slowed in recent months on the back of heightened trade tensions with the United States and a deleveraging push from being rolled out across China’s industrial sectors.
  • Chinese stocks are soaring on the news, on track to record a third-straight session of 1%-plus gains.

Facing growing trade tensions with the United States and a slowdown at home, Chinese policymakers are taking steps to support economic growth, delivering additional corporate tax cuts and promising to speed up infrastructure spending.

“The proactive fiscal policy will become more active,” China’s state radio said, according to Reuters, citing a statement issued after China’s State Council met on Monday.

The statement said fiscal policy will focus on cutting taxes for companies while the pace of local governments’ special bond issuance will be quickened, aimed to bolster economic activity after a modest slowdown in the year to June.

The government will deliver a tax cut of 65 billion yuan ($US9.6 billion) by expanding a preferential policy for small tech firms to all companies, on top of an initial goal of cutting taxes and fees by 1.1 trillion yuan this year, the report said.

It added that policymakers will keep liquidity ample and maintain appropriate total social financing under its prudent monetary policy, which will be neither too tight nor too loose.

The statement also called for faster investment growth and steady financing to local investment projects, according to Bloomberg, although policymakers stressed that they’d refrain from using broad-based stimulus measures to stimulate the economy.

While, if correct, that would break from past traditions where policymakers often overlooked longer-term consequences in favour of bolstering the near-term economic growth, the announcement, on top of a record liquidity injection into China’s financial system via one-year loans through the PBoC’s medium term lending facility (MLF) on Monday, has some questioning whether further stimulus measures will be rolled out in the period ahead.

“It is now quite clear that Beijing has fully shifted its policy stance from the original deleveraging towards fiscal stimulus that will be underpinned by monetary and credit easing,” Lu Ting, chief China economist at Nomura, told Bloomberg.

Others, such as Larry Hu, head of China economics at Macquarie Securities, said the latest measures were likely designed to help cushion growth following slowdown in the June quarter sparked in part by Beijing’s push to encourage deleveraging across industrial sectors.

“I don’t think there is a significant easing or a policy U-turn; it’s more of a fine-tuning,” he told Bloomberg. “Policymakers are sewing patches, offsetting the deleveraging drive that was too rapid and fierce.”

Whether the start of a broader stimulus push or not, Chinese stock investors have certainly welcomed the news, pushing markets sharply higher for a third consecutive session, leaving them at one-month highs.

The benchmark Shanghai Composite Index finished Tuesday’s morning session up 1.6% at 2,905 points, the highest level since June 25.

All sectors except for utilities have gained more than 1%, led by industrials and basic materials which have surged more than 2%.

Like the Composite, all major mainland indices are up between 0.7% to 1.7% with strong gains seen across both small and large-cap stocks.

Not even another slide in the Chinese yuan, seeing it fall to fresh one-year lows against the greenback in offshore trade, has been enough to dent confidence among investors on Tuesday.

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