PBOC adviser says China has to do ‘something major’ for economy
Beijing is trying to rein in excessive local subsidies that fuelled a glut of production capacity in industries such as electric vehicles
[SHANGHAI] China needs a bolder spending package to mend the finances of households and companies, according to a central bank adviser, as signs of resilience in the economy mask the damage wrought by the trade war with the US.
While booming exports supported economic output in the third quarter, indicators ranging from inflation to private investment and unemployment all point to sluggish confidence in the face of tariff uncertainties, said Huang Yiping, a member of the monetary policy committee at the People’s Bank of China (PBOC).
“What we really need is for the government, including the central bank, to do something major – to repair the balance sheets of households, enterprises, local governments and maybe also the financial institutions,” he said in an interview on the sidelines of the Bund Summit in Shanghai.
The assessment calls into doubt the ability of the world’s second-biggest economy to remain mostly immune to the trade war without a larger dose of stimulus.
Top officials appeared mindful of the challenges facing China at a four-day meeting of the Communist Party’s Central Committee this week. While focused on laying out longer-term plans, a communique released on Thursday (Oct 23) reiterated a call to stabilise employment, enterprises, markets and expectations.
Huang, who’s also an economics professor at Peking University, called for aggressive fiscal easing so the central government can provide local authorities with more money to spend as they see fit.
Fewer restraints on spending would mark a break from the approach favoured by Beijing. Many public bonds, for example, come with strict strings attached, such as having to generate profits from projects, causing fiscal largess to be idled and restricting expenditure in areas such as infrastructure and public services.
China reported solid economic growth last quarter, putting it on track to reaching the official target of around 5 per cent this year.
But the expansion has become more lopsided. Consumption is slowing on the back of the fading impact of the government’s trade-in subsidies while industrial production picks up thanks to the strength of exports.
Deflation across the economy extended into the 10th straight quarter, as a consequence of weak domestic demand still held back by slumping housing prices.
Huang reiterated a call for the government to stabilise the property market, once a mainstay of the economy that’s needed to help restore consumer confidence.
Higher household incomes and confidence are key to boosting consumption in a more sustainable way, since subsidies for consumers can only have a temporary impact, according to Huang.
When it comes to monetary policy, Huang sounded more cautious, saying it can play a role but warning there’s no room for aggressive easing in the short term.
In addition, China needs to steer local governments away from being held responsible for promoting growth as in the past, he said. Beijing is trying to rein in excessive local subsidies that fuelled a glut of production capacity in industries such as electric vehicles.
Local officials should be assessed more on the basis of indicators such as employment and household income, rather than just the rate of economic growth alone, Huang added.
“Local governments directly engaging in economic activities – that’s a transitional period,” he said. Going forward, “what the local government should focus on is really narrowly defined government activity”. BLOOMBERG
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