China’s annual National People’s Congress (NPC) kicked off on March 5 with Premier Li Keqiang’s presentation of the government work report, in which he announced a lower economic growth target of 6.0-6.5 percent this year.
Li also pledged billions of dollars of cuts to taxes and fees to shore up an economy growing at its slowest pace in almost 30 years.
Adding to Li’s pledges, China’s central bank on Sunday said it would support the slowing economy by spurring loans and lowering borrowing costs.
Here is an overview of official comments on monetary policy, fiscal policy, the yuan, interest rates and bonds since March 5.
Li said China’s monetary policy would be prudent and “neither too tight nor too loose”, and that the government would not resort to a flood of liquidity. He said China will use various monetary policy tools, enhance channels for policy transmission and maintain reasonably ample liquidity.
Growth targets for M2 money supply, which includes cash in circulation and deposits, and total social financing this year would be in line with nominal GDP growth, Li said.
People’s Bank of China (PBOC) Governor Yi Gang said that the central bank had not changed its “prudent” monetary policy, but would emphasise counter-cyclical adjustments. He added that monetary policy will primarily consider domestic conditions, but will balance that against the external environment.
China will step up its proactive fiscal policy, setting a budget deficit of 2.8 percent of gross domestic product (GDP), up from 2018’s 2.6 percent target.
The Ministry of Finance said fiscal revenue will be increased by 5 percent and spending by 6.5 percent.
For the full year, China plans to cut corporate burdens by nearly 2 trillion yuan ($297.57 billion). Li said the government will reduce the value-added tax (VAT) for the manufacturing sector to 13 percent from 16 percent. The VAT for the transport and construction sectors will be cut to 9 percent from 10 percent.
No details have been given on when the lower VAT rates will take effect.
PBOC Governor Yi said the central bank had basically exited from regular intervention in the foreign exchange market, and that the yuan’s exchange rate is not a major concern when deciding China’s monetary policy.
The central bank will let the market play a bigger role in setting the exchange rate, and will “unwaveringly push forward financial opening according to its own timetable and the needs of reform”, Yi said. He added that China had made substantial steps towards making the yuan’s exchange rate mechanism more market-oriented.
Yi said that China will not use the exchange rate to boost its exports, nor will the country use exchange rates as a tool in trade conflicts.
On March 5, Li said China will improve the formation mechanism of the yuan’s exchange rate and keep the currency basically stable at reasonable levels.
A more detailed report released on March 5 by the National Development and Reform Commission (NDRC) said China will also increase the yuan’s exchange rate flexibility and strengthen regulations on cross-border capital flows in 2019.
The state planner said it will make efforts to keep equity, bond and currency markets stable, and will react to abnormal fluctuations in a timely manner to prevent and fend off financial risks.
The Chinese central bank sets a daily mid-point in the country’s onshore foreign exchange market. The yuan is allowed to trade no more than 2 percentage points above or below that level against the dollar, to control volatility.
The yuan is also traded offshore, mostly in Hong Kong, where there is no trading band.
Yi said lending rates for small firms are still relatively elevated due to high risk premiums.
China’s reserve requirement ratios (RRRs) are neither too high nor too low by international standards, Yi said. He said he stills sees some room for cutting RRRs, but less than a few years ago.
Earlier, Li pledged to deepen market-oriented reforms in interest rates and to lower borrowing costs.
China will use policy tools such as RRRs and interest rates in a timely manner to guide financial institutions to expand credit and lower loan costs to support the real economy.
The NDRC said it will keep market rates reasonably stable.
The Finance Ministry said it will grant local governments a quota of 2.15 trillion yuan for special bond issuances this year, sharply higher than the 1.35 trillion yuan quota it granted in 2018.
The local government bond issuance quota was set at 3.08 trillion yuan for this year.