Chinese policymakers have ample room to boost fiscal outlays in government spending, with one of the options being sprucing up much-needed urban facilities, including parking lots and retirement homes, rather than plough in funds in mega projects.
According to Chinese policy sources, Beijing plans on easing borrowing curbs and sink in more money into infrastructure projects as a way to soften the blows to the economy from the U.S.-China trade war.
The escalating trade war with the U.S. has to a large extent clouded China’s economic outlook and could fuel job losses.
Wary of debt related risks Chinese leaders have ruled out another round of strong fiscal stimulus. In 2008-2009, they sunk in $590 billion (4 trillion yuan) to shield the economy from the 2007-2009 global financial crisis; this however has saddled local state firms and local governments with piles of debt.
According to 4 sources familiar with the government’s policy, the quantum of infrastructure spending will depend on how the trade war evolves.
Incidentally, the sources are involved in internal policy discussions but are not part the final decision-making process.
“In the short term, the most effective way is to boost infrastructure investment,” said a policy insider who advises the Chinese government, on the condition of anonymity. “We will let fiscal policy play a bigger role in supporting the economy as monetary policy is less effective.”
The trade war has already pushed up corporate borrowing costs and has led to delays in government projects. As a result, China’s economic growth has slowed from 6.7% in the second quarter to around 6.5%.
Adding to the worry of Chinese policy makers is a slowdown in the country’s property market and reduced outbound shipments. Growth in China’s infrastructure investments have fallen to 7.3% in the first half of this year from 21.1% from a year earlier.
Earlier this week on Monday, China’s cabinet members stated, fiscal policy will become “more proactive”; policymakers have pledged to deliver more tax cuts and quicken the issuance of local governments’ special bonds to support infrastructure investment.