China adding stimulus to boost demand

China is expected to consider launching more monetary support and fiscal stimulus at an early date to boost domestic demand, providing a key driving force for its economy and global growth, government policy advisers and economists said.

Sensible policy options include trimming the amount of money lenders hold as reserves, granting low-income households cash subsidies, raising the deficit-to-gross domestic product ratio or issuing special treasury bonds and allocating part of next year's quota of local government special bonds in advance, they said.

Such measures to boost domestic consumption and investment have become imperative, as the country's export growth could weaken due to global stagflation risks and as domestic demand has been dampened by recent COVID-19 outbreaks, with declines in retail sales and property development investment, they added.

Their comments came after Yi Gang, governor of the People's Bank of China, the country's central bank, said monetary policy will remain accommodative to support economic recovery, given the downward pressures on growth due to COVID-19 and external shocks from outside the country.

The central bank will also emphasize structural policies such as those supporting small and medium-sized enterprises and the green transition, Yi said in an interview with China Global Television Network published on Monday, adding that real interest rates are "pretty low" in China.

Wang Tao, head of Asia economics at UBS Investment Bank, said the PBOC is likely to amplify policy support through cuts in the reserve requirement ratio, other liquidity injection tools and easier credit policies. The reserve requirement ratio refers to the proportion of money lenders must hold as reserves.

Such policies are expected to sustain a rebound in credit growth, keep market interest rates low and even trigger small reductions in the loan prime rates or market-based benchmark lending rates used by companies and individuals in the wider economy, Wang said.

On the fiscal front, it is sensible to subsidize low-income groups with cash, which can help stabilize their income levels and boost their consumption capacity, said Cai Fang, chief researcher of the National High-End Think Tank at the Chinese Academy of Social Sciences.

Compared with other measures, a cash subsidy to low-income groups may work more effectively as it is aimed at those facing the most acute difficulties, said Cai, who is also a member of the central bank's monetary policy committee. Cai made the remark on Tuesday on the sidelines of a symposium about a book on China's economic achievements that was compiled by the Development Research Center of the State Council.

Wang Yiming, vice-chairman of the China Center for International Economic Exchanges and a member of the monetary policy committee of the PBOC, said during a webinar held by the China Macroeconomy Forum on Saturday that it is worth considering raising this year's deficit-to-gross domestic product ratio or issuing special treasury bonds to help expand domestic demand.

Cheng Shi, chief economist at ICBC International, said it is likely that China may allocate part of next year's quota of local government special bonds in advance to support investment. China's economy is expected to show a full-blown recovery led by infrastructure investment and consumption in the second half of the year, Cheng added.

With effective measures to speed up China's economic recovery, the country is expected to remain the biggest contributor to global growth and could become even more important for the world economy, the economic experts said.

"Given that the rest of the world's economic growth will be slowing significantly throughout the second half of this year, China's economic rebound will take on greater importance for global growth," said Maximilian Wieland, an economist at Vanguard Investment Strategy Group.