China’s State Council to defend growth proactively

HONG KONG – a statement from China’s State Council (chaired by Premier Li Keqiang) sends a clear message that the Government is preparing to defend growth, says ANZ Bank. The statement lists a number of policy measures to support China’s real economy:

· In addition to continuing with a planned tax cut of CNY1.1trn, companies will receive an additional tax cut (of CNY65bn) on R&D expenditure.

· The Government will accelerate the issuance of CNY1.35trn project-based local government bonds (LGBs) to support infrastructure investment.

· The Government will encourage private investment in the transportation, oil and gas, and telecommunication sectors. ·

The Government will  encourage commercial banks to issue financial bonds and provide lending to support SMEs.

· It will also push local governments to utilise untapped fiscal money. ·

. Policies that attract foreign businesses to re-invest and accelerate implementation of FDI projects will be impsroved. ·

. The Governnent will guide financial institutions to ensure funding to existing projects and reasonable funding requirement from local government financing vehicles (LGFVs).

In a briefing note, ANZ Bank says that while most of the policy measures announced are regarded as micro level structural reforms (such as cost cutting), the statement clearly articulates that fiscal policy should be ‘more proactive’.

It also mentions that fiscal and monetary policies should be synergetic, suggesting that Premier Li may be concerned about the negative impact of deleveraging on growth.

ANZ says the shift in policy stance is unlikely to lead to a larger official fiscal deficit in 2018 because China still has some left-over money to fill the gap. ANZ also believes the fiscal policy focus in H2 could be on project-based LGBs, which are not included as the official fiscal deficit.

“Note that China is not planning to launch another round of massive fiscal stimulus like that of 2008-09,” says ANZ.

“The statement reiterates a desire not to ‘flood the economy’. Policymakers are still mindful of debt risks in our view.”  www.live.anz.com (ATI).