China’s central bank governor said there was room to further reduce banks’ reserve requirements and vowed to use monetary policy to support consumer prices.
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BEIJING – The heads of China’s central bank and economic planning agency signaled authorities would be willing to take further steps to support growth, but did not announce any large-scale stimulus plans.
Pan Gongsheng, governor of the People’s Bank of China, told reporters on Wednesday that there is room to further reduce banks’ reserve requirements – the amount of cash they need to hold on hand. He also promised to use monetary policy to provide “soft” support for consumer prices, according to a CNBC translation of his remarks into Chinese.
Ban spoke at a news 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 around 5% this year while sticking to a budget deficit of 3%.
In the annual government performance report released on Tuesday, Premier Li Qiang vowed to transform the world’s second-largest economy, which faces a host of economic challenges including a real estate slump, high levels of local government debt, deflation and weak consumer demand.
However, the earnings report fell short of many analysts’ expectations for further stimulus and raised questions about how China can achieve another year of growth of around 5%.
National GDP grew 5.2% in 2023 from a low base in 2022 as China emerged from stringent “zero Covid” measures. China’s consumer prices posted their biggest fall in January since 2009, while producer prices fell for a 16th month, underscoring the depth of the challenge Beijing faces in rebuilding the world’s second-largest economy.
However, Pan said China has enough monetary policy tools at its disposal and vowed to push for lower financing costs in the coming months.
The PBOC last cut reserve requirements for banks by 50 basis points since Feb. 5, providing 1 trillion yuan ($139.8 billion) of long-term capital. This was a much larger contraction than analysts had expected.
Accelerating 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 that this will require coordination of fiscal, monetary, labor, industrial and regional policies as China continues to step up macroeconomic policy adjustments.
“Of course, we can clearly see that there are still many difficulties and problems in the process of achieving the expected goals,” Zheng said, according to a CNBC translation of his remarks into Chinese.
He noted that “the external environment may become more complex and harsh.” At home, there could be problems with China’s efforts to remove provincial barriers to doing business by creating a “national single market,” he added.
Zheng also said there is intense competition in some industries, production and operational difficulties for some businesses, and ongoing risks in other areas. He did not name the property.
Chinese Commerce Minister Wang Wentao said foreign trade has faced a serious situation this year.
Zheng, the NDRC chief, said China’s exports increased 10% in the January-February period compared with last year, but did not specify whether that was expressed in Chinese yuan or U.S. dollar terms. The next batch of trading data is due out on Thursday.
Bonds, debt and domestic demand
At a press conference, Chinese Finance Minister Lan Fo’an told reporters that the local debt situation was generally “under control.”
He said local government debt levels had dropped since his ministry’s work last year and they were working on a long-term mechanism to address hidden bad debts while seeking to defuse the problem through a range of measures.
The “ultra-long” special Treasury notes announced in Tuesday’s government report were a rare surprise and were issued for only the fourth time since the 1990s.
NDRC chief Zheng told reporters the bonds will support technological innovation, energy securities and other key areas that are among President Xi Jinping’s “new productive forces” outlined in the working report.
He also said policy plans to upgrade equipment would help boost consumption in the world’s second-largest economy and create a market worth more than 5 trillion yuan (about $694.5 billion). He said the plan would include home appliances and vehicles, among other items.
China’s economy has been hit by sluggish consumption as a slump in the property market, debt risks and a falling stock market undermine confidence.
Boosting domestic demand is third on the list of 10 economic priorities in the Chinese government’s plan for this year, highlighting the gravity of the problem.
For investors in the short term, the main concern remains how focused China’s policymakers are on driving economic growth.
“To achieve this [target of around 5%]The government work report proposes many important policy measures,” Huang Shouhong, head of the report team and director of the State Council Research Office, told reporters in Chinese 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 arsenal,” he said.