Proactive and prudent policies to shore up growth in second half

A proactive fiscal policy that is in sync with the nation's prudent monetary stance will help ensure stable economic growth during the second half of the year, top economists said on Wednesday.

Stronger supportive measures are expected, including further implementation of tax and fee cuts and targeted monetary easing, to stabilize employment, trade, financial markets, investment, foreign capital, and expectations, economists told China Daily after a meeting of the country's policymakers.

The Political Bureau of the Communist Party of China Central Committee held a meeting on Tuesday and said that the nation will continue to implement a proactive fiscal policy and a prudent monetary policy in the second half of this year.

Cutting taxes and fees will be the priority in terms of fiscal policy, and nearly 1 trillion yuan ($145 billion) has to be reduced in the second half to achieve the 2 trillion yuan annual target, said experts.

Wang Jun, head of the State Taxation Administration, said at a meeting on Tuesday that cutting taxes and fees should be further implemented, although "it is a heavy task". The administration will also crack down on tax fraud in the subsequent months.

China's newly-introduced tax cuts and fee reductions have saved businesses 1.17 trillion yuan in the first half of this year, the STA said. The private sector has gained the most from the reforms, with 671.2 billion yuan of taxes reduced during the first six months.

In the third quarter, "we expect policy to become incrementally supportive again to maintain stable economic growth," according to Song Yu, an economist with Beijing Gao Hua Securities Co Ltd, Goldman Sachs' joint-venture company in China.

Meanwhile, expectations are rife that the government would raise the local government special bond quota later this year, as the Ministry of Finance had earlier confirmed that the 2019 quota of 2.15 trillion yuan would be fully utilized by September. Additional quota, as experts said, could support fixed-asset investment in the fourth quarter.

The fiscal policy will also support financing of small- and medium-sized enterprises, as the high-level meeting emphasized that financial institutions should be encouraged to increase medium-and long-term financing to the manufacturing industry and private companies, said Shen Jianguang, vice-president and chief economist at JD Digits, a Chinese financial technology firm.

The Ministry of Finance, jointly with other government departments, issued a notice recently to inject 2 billion yuan of special funds into some pilot cities each year, and the fund will be used as the compensation for small and micro enterprises' credit risk.

On the monetary policy front, the meeting suggested that the monetary policy should be "neither too tight nor too loose", while some economists said further cuts in reserve requirement ratios and interest rates are likely in the coming months. These measures can maintain market liquidity at the reasonable level required by the high-level meeting.

"We do not expect the monetary policy to shift toward more significant easing from here," said Zhu Haibin, JPMorgan Chief China Economist. "The meeting reiterated that the real estate market should not be used as short-term stimulus policy. (It also gave a) balanced statement on financial stability issues, such as accelerating disposal of zombie companies and controlling the pace of risk disposal, pointing at constraints in monetary and regulatory policy implementation."

The People's Bank of China, the central bank, will likely abandon the benchmark lending rate to build a stronger connection between banks' loan prime rate and key financial market interest rate in its effort to lower the funding cost for the real economy, said Zhu.

Besides supporting economic growth, the high-level meeting also stressed to prevent potential risks, saying that policy should "be well-measured at the pace and intensity of dealing risks", and "clarify the responsibilities of financial institutions, local governments and financial regulators," according to the statement.