China’s central bank governor said there was room to cut banks’ reserve requirements further and pledged to use monetary policy to support consumer prices.
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BEIJING — The heads of China’s central bank and economic planning agency said authorities would be willing to take further steps to support growth, but stopped short of announcing large-scale stimulus plans.
Pan Gongsheng, governor of the People’s Bank of China, told reporters on Wednesday that there is room to further cut banks’ reserve requirements – the amount of cash they must hold on hand. He also pledged to use monetary policy to “softly” support consumer prices, according to a CNBC translation of his remarks in Mariner language.
Pan spoke at a press conference with other key leaders of the country’s economy and financial sector on the sidelines of this year’s annual parliamentary sessions.
Leaders defended China’s growth target of about 5 percent for the year while keeping a budget deficit of 3 percent.
In an annual government work report released on Tuesday, Premier Li Qiang pledged to transform the world’s second-largest economy, which is facing a host of economic challenges including a real estate slump, high levels of local government debt, deflation and weak consumer demand.
But the jobs report fell short of many analysts’ expectations for further stimulus and raised questions about how China would be able to achieve another year of growth of around 5 percent.
National GDP grew by 5.2% in 2023, against a low base in 2022 as China emerged from its strict “zero Covid” measures. China’s consumer prices fell by their biggest drop in January since 2009, while producer prices fell for a 16th month – underscoring the depth of the challenge facing Beijing in restructuring the world’s second-largest economy.
But Pan said China has plenty of monetary policy tools at its disposal and pledged to push for lower funding costs in the coming months.
The PBOC last cut reserve ratio requirements for banks by 50 basis points from Feb. 5, which provided 1 trillion yuan ($139.8 billion) in long-term capital. It was a much larger cut than analysts had expected.
Enhancing growth
This year, China “will continue to strengthen macroeconomic policies,” said Zheng Shanjie, chairman of the National Development and Reform Commission, the country’s economic planning agency.
He noted how this would involve coordination of fiscal, monetary, employment, industrial and regional policies as China continues to step up macroeconomic policy adjustment.
“Of course, we clearly see that in the process of achieving the expected goals, there are still many difficulties and problems,” Zheng said, according to CNBC’s translation of his remarks in Mariner language.
He noted how the “external environment can become more complex and serious.” Domestically, there may be problems in China’s efforts to remove provincial barriers to doing business by creating a “national unified market,” he added.
Zheng also said there is intense competition in some industries, production and operating difficulties for some businesses, and persistent risks in other sectors. He did not name the properties.
China’s Commerce Minister Wang Wentao said foreign trade is facing a serious situation this year.
Zheng, the head of the NDRC, said China’s exports for the January-February period rose 10 percent from a year ago, but did not specify whether that was in Chinese yuan or US dollars. The next installment of trade data is expected to be released on Thursday.
Bonds, debt and domestic demand
At the press conference, China’s Finance Minister Lan Fan told reporters that the local debt situation is “under control” overall.
He said local government debt levels had fallen following his ministry’s work last year and they were working on a longer-term mechanism to resolve the issue of hidden bad debts while seeking to defuse the issue with a series of measures.
The “extra-long” special government bonds announced in Tuesday’s government jobs report were the rare surprise and only fourth time they have been issued since the 1990s.
NDRC chief Zheng told reporters that these bonds will support technological innovation, energy securities and other key sectors – which are among President Xi Jinping’s “new productive forces” listed in the jobs report.
He also said the policy plans for equipment upgrades would help boost consumption in the world’s second-largest economy and create a market of more than 5 trillion yuan (about $694.5 billion). He said this plan would include home appliances and vehicles, among others.
China’s economy has been dragged down by underconsumption as a slumping property market, debt risks and a falling stock market weigh on confidence.
Stimulating domestic demand is the third task on the list of 10 economic priorities in the Chinese government’s plan for this year, underscoring the seriousness of the issue.
For investors in the near term, the primary concern remains how China’s policymakers focus on securing growth.
“To accomplish this [target of around 5%]the government’s work report proposed many important policies,” Huang Shouhong, head of the report’s drafting team and director of the State Council’s research office, told reporters in Mandarin on Tuesday, as translated by CNBC.
“If China’s economy faces unexpected shocks in the future or the international environment undergoes unexpected changes, we still have spare tools in our policy toolbox,” he said.