(Bloomberg) -- China's cabinet said the central bank should enact further cash injections and local authorities should issue more infrastructure bonds, as the country ramps up its efforts to support the economy amid the worsening global coronavirus crisis.
The State Council called for lower reserve-requirement ratios for small banks, more infrastructure bond sales by local authorities, and other steps including tax exemptions for people buying a new-energy vehicle, according to a statement released after a meeting led by Premier Li Keqiang on Tuesday. It didn't offer any details on the scope of the policies.
The People's Bank of China would usually cut banks' reserve ratios a few days after such a request from the State Council. The request comes soon after the central bank cut rates on its short-term funding to banks and the Communist Party's leadership pledged to widen the fiscal deficit to help the economy.
China Signals Ramped-Up Stimulus as Coronavirus Impact Widens
Economic activity in China is almost certain to contract deeply in the first quarter, as the government shut down large parts of the nation to stop the spread of the coronavirus. Economists expect gross domestic product to rise slightly, if at all, in the second quarter as the disease's global spread is set to exert fresh pressure on the domestic economy.
“Changes in the global economy and trade bring severe shocks and new challenges to the Chinese economy, which require stronger adjustment in fiscal and monetary policy to expand domestic demand,” the statement said, adding that the government would also increase help for small companies, especially exporters and the self-employed.
Infrastructure Bonds
The meeting said local governments will be able to sell more so-called special debt, instruments used to raise funding for infrastructure projects, especially in regions with more key projects and low risks. The sales of the newly-allocated bonds will have to be completed by the end of the second quarter, it said.
The coronavirus outbreak has delayed the release of China's 2020 budget. Policy makers have sidestepped the problem by approving early bond sales before budget approval, in order to ensure sufficient funding for local authorities. About 1.3 trillion yuan ($183 billion) of infrastructure bonds have been allocated earlier, with most of that already used up. The latest batch announced on Tuesday can ease authorities' fiscal stress as business shutdowns impact tax revenue.
Apart from the RRR cut, Tuesday's meeting also pledged another 1 trillion yuan of funding through the central bank's relending and rediscounting program, on top of the previous quota of 500 billion yuan. The money is essentially a cheap credit line for small commercial lenders, and it can only be used for loans to small companies, exporters and firms in the agricultural sector.
©2020 Bloomberg L.P.
With assistance from Bloomberg
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
