Chinese regulators should step up support for the economy and keep ample liquidity in the financial system, Vice Premier Liu He said on Thursday, suggesting Beijing would soon unveil more policies to bolster growth amid rising U.S. trade pressure.
Trade talks between the world’s two largest economies collapsed last month, with U.S. President Donald Trump accusing China of watering down commitments it had made. Trump raised tariffs on Chinese goods and has threatened even more. Beijing has plenty of policy tools and is capable of dealing with various challenges, Liu, who is also the lead negotiator in the U.S.-China trade talks, told a financial forum in Shanghai. Despite a slew of support measures and policy easing since last year, China’s cooling economy is still struggling to get back on firm footing, and last month’s sudden escalation in U.S.-Sino tensions has raised fears of a full-blown trade war that could trigger a global recession. Liu’s comments came a day after data showed China’s credit growth was weaker than expected in May, reinforcing market expectations that more monetary easing is needed. Factory activity contracted in May and imports fell the most in nearly three years, highlighting sluggish demand. “At present, we do have some external pressures, but those external pressures will help us boost our self-reliance in innovation and accelerate the pace of high-speed development,” said Liu.
The government will announce more strong measures to promote reforms and opening up of its markets, added Liu. The prospect of more economic support helped Chinese stock markets recover from early losses. People’s Bank of China chief Yi Gang said last week that there was “tremendous” room to make policy adjustments if the trade war worsens. Earlier on Thursday, China Daily, citing economists, said China is expected to adjust money and credit supply in coming weeks, including cuts to interest rates or reserve ratio requirements, to counter risks if the trade outlook deteriorates. The commerce ministry said on Thursday Beijing will not yield to any “maximum pressure” from Washington, and any attempt by the United States to force China into accepting a trade deal will fail.
“Cooperation is based on principles, and negotiations do have a bottom-line, and the Chinese side will not make concessions on important matters of principle,” ministry spokesman Gao Feng told reporters at a regular briefing. Further cuts in Chinese banks’ reserve requirement ratios (RRR) and various forms of cash injections by the central bank had already been expected this year before trade ties soured. Last month, the PBOC stepped up efforts to increase loan growth and business activity, announcing cuts in regional banks’ reserve requirements to reduce financing costs for small and private companies. It has now cut RRR times six since early 2018, and has also guided short-term interest rates lower. Unlike previous downturns, however, the central bank has been reluctant to cut benchmark interest rates so far. Analysts believe it has held off on more aggressive measures due to concerns that such a move could risk adding to a mountain of debt leftover from past stimulus sprees.