Chinese regulators should step up support for the economy and keep ample liquidity in the financial system, Vice Premier Liu He says, suggesting Beijing will soon unveil more policies to bolster growth amid rising US trade pressure.
Beijing has plenty of policy tools and is capable of dealing with various challenges, Liu said at a financial forum in Shanghai on Thursday.
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 US-Sino tensions has raised fears of a full-blown trade war that could trigger a global recession.
Liu's comments came after 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 soft 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, who is also the lead negotiator in the US-China trade talks.
The government will roll out more strong measures to promote reforms and opening up, added Liu.
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.
"We have plenty of room in interest rates, we have plenty of room in the required reserve ratio rate, and also for the fiscal, monetary policy tool kit, I think the room for adjustment is tremendous," Yi said.
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 "downside risks" if trade tensions escalate.
Unlike previous downturns, the central bank has been reluctant to cut benchmark interest rates so far.
More forceful easing could also trigger capital outflows and add pressure on the Chinese yuan, which has slid nearly 3 per cent against the US dollar since the trade flare-up last month.
Sources told Reuters in February that the PBOC considered a benchmark rate cut a last resort. But some analysts now think one or more cuts are likely if the trade dispute spirals out of control and the US Federal Reserve starts cutting its rates, giving the PBOC more room to manoeuvre.
Beijing has set a growth target of around 6 to 6.5 per cent for this year, easing from 6.6 per cent in 2018, which was the slowest rate of expansion the country has seen in nearly 30 years.
Australian Associated Press