July 23, 2018 / 12:23 PM / in 4 months

China eyes more vigorous fiscal policy short of strong stimulus

BEIJING (Reuters) - China will adopt a more vigorous fiscal policy to help tackle external uncertainties without resorting to strong policy stimulus, state radio said on Monday, citing the cabinet.

Chinese Premier Li Keqiang speaks at the China-EU Business Roundtable held at the Great Hall of the People in Beijing, China, Monday, July 16, 2018. Ng Han Guan/Pool via Reuters

Slowing economic growth has sparked a heated debate among government researchers on whether fiscal policy should play a bigger role in softening the impact of a trade war with the United States.

“The proactive fiscal policy will become more active,” state radio cited a statement issued after a cabinet meeting, chaired by Premier Li Keqiang, as saying.

The fiscal policy will focus on cutting taxes for companies while the pace of local governments’ special bond issuance will be quickened, it quoted the cabinet as saying.

The government will deliver a tax cut of 65 billion yuan ($9.6 billion) by expanding a preferential policy for small tech firms to all firms, on top of an initial goal of cutting taxes and fees by 1.1 trillion yuan this year, the cabinet said.

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

Economic growth slowed slightly to 6.7 percent in the second quarter as Beijing’s efforts to contain debt hurt activity, while June factory output growth weakened to a two-year low, in a worrying sign for investment and exporters as a trade war with the United States intensified.

China’s regulatory tightening has driven up corporate borrowing costs, prompting the central bank to cut banks’ reserve requirements three times this year, with further cuts widely expected.

In March, Premier Li Keqiang announced a cut in the annual budget deficit target from 3 percent of gross domestic product in 2017, the first since 2012, but the finance ministry said fiscal policy remained supportive for growth, given a jump in planned special bond issuance this year.

($1=6.7860 Chinese yuan renminbi)

Reporting by Kevin Yao and Fang Cheng; Writing by Se Young Lee; Editing by Clarence Fernandez

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