China to introduce stimulus measures, as U.S. trade action bites into its economic growth

Chinese Premier Li Keqiang has stated China will reduce the reserve requirement ratios (RRRs) for banks, and slash taxes and fees.

Facing a multi-pronged trade action by the United States and the European Union, China, the world’s second largest economy is showing signs of cooling.

As a result, Chinese Premier Li Keqiang stated on Friday, China will reduce the reserve requirement ratios (RRRs) for banks, and slash taxes and fees.

The RRR measure is aimed at supporting small and private companies, said Li, as per a statement put up on the website of the Chinese government.

In 2018, Beijing already slashed this minimum reserve requirements for its banks four times, thus freeing up more funds for lending. Analysts expect China to continue on this path for the rest of this year and expect three to four more cuts for 2019.

Beijing will also step up “countercyclical adjustments” of macro policies and further cut taxes and fees, said Li said, thus largely reiterating previous policy pledges.

Li made these comments at a meeting with China’s top officials from its insurance and banking regulators.

Earlier this week, China reported that its manufacturing activity shrank in December – a first in over two years. This highlights the macro and micro economic challenges facing the country as Washington’s trade barrage takes a toll on its economy, which is the backbone of its military.

New factory orders, a key metric of future activity has continued to soften thus suggesting that the business environment in the country is likely to get worse in the near future.

As a redressal measure, China’s Communist government has ramped up infrastructure spending to rekindle sluggish demand and investment.

China has maintained that its economy is likely to grow at 6.5% in 2018, slowing down from 6.9% in 2017.

However, according to analysts, the Chinese economy is likely to register a growth of just 6% even if it manages to clinch a trade deal with the U.S.

“The economy is weak and stimulus needs to arrive quickly,” said economists at ING in a note to clients earlier this week.

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