China says it seeks more ways to support economy amid uncertainties

An escalating trade war with the United States, rising corporate bankruptcies and a steep decline in the value of the yuan versus the dollar have raised concerns that China's economy could face a steeper slowdown.

By: Reuters | Beijing | Published: August 3, 2018 11:42:41 am

China says it seeks more ways to support economy amid uncertainties

“China’s economy is still in a period of transition between new and old drivers… and external uncertainties are increasing,” it said.

China must balance steady economic growth and risk prevention at a time external uncertainties are increasing, a statement on a meeting of a high-level government body said on Friday.

The State Council Financial Stability and Development Commission (FSDC), headed by Vice Premier Liu He, said more attention needs to be paid to the “transmission” of monetary policy and its support for the real economy, according to a statement on a government website.

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“China’s economy is still in a period of transition between new and old drivers… and external uncertainties are increasing,” it said.

“These issues need to be addressed actively, steadily and more accurately.”

An escalating trade war with the United States, rising corporate bankruptcies and a steep decline in the value of the yuan versus the dollar have raised concerns that China’s economy could face a steeper slowdown.

The government has responded by releasing more liquidity into the banking system, encouraging lending and promising a more “active” fiscal policy.

Friday’s statement did not give a date for the FSDC meeting, which was the second regular one for the body, after July 2.

Based on the statement, the latest meeting focused much more on ensuring credit for real economic activity. It also added a reference to rising external uncertainties, which was not mentioned after the July 2 meeting, though there was no specific mention of trade frictions or the falling yuan on Friday.

“Currently, financial conditions are generally improving and the macro leverage ratio is stabilising,” the statement said.

“Market expectations have changed – financial institutions are more aware of compliance, and steps have been made to contain rapid expansion and illegal fundraising activities in the financial sector.”

NEW DRIVERS SOUGHT

The statement was in line with recent pronouncements that China needs to more actively support economic growth, and ensure productive firms aren’t cut off from credit as a side-effect of a government drive to reduce financial-system risk.

A central bank adviser said on Wednesday China should limit the credit impact of its financial deleveraging drive, voicing concern that tightening may have gone too far.

China must “support the creation of final demand, and develop new drivers and direction for the real economy”, said Friday’s statement.

In order to ensure credit is going to support productive economic activity, especially small firms, China should step up lending assessments and internal incentives, the commission said.

There should also be incentive mechanisms in the financial sector, with praise for achievements and encouragement when efforts are made to fix mistakes.

China will continue to crack down on illegal financial activities and institutions, the meeting decided.