China mulls stimulus policy to boost economy – analysts

23 May 2012 10:45  [Source: ICIS news]

SINGAPORE (ICIS)--China will soon announce new measures to boost its economy but the stimulus will not be as aggressive as that of 2009 which aimed to counter the effects of the global financial crisis, analysts said on Wednesday.

The Chinese economy performed far below expectations in April when growth in industrial production, imports, exports, fixed-asset investment and bank lending all slowed. Worse news for May is widely expected, according to analysts.

“This has caused increasing concern to policy makers,” said Zhang Junfeng, senior analyst at Shenzhen-based broker China Merchants Securities (CMS).

The forthcoming measures would focus on boosting domestic consumption, the analysts said.

The most effective and direct method would be to lower lending costs to motivate consumers and businesses to spend. 

“We expect that the country will lower banks’ reserve requirement ratio [RRR] further in mid-June after the release of the data for May,” Zhang said, adding that an interest rate cut may be announced in July should the RRR policy fail to deliver.

RRR had been reduced twice this year, on 24 February and 18 May.

The government may also broaden tax reductions. 

“The government has realised that tax rates are quite high for many industries and a lower tax burden would help stimulate consumption,” said Wu Huaiguo at Guangzhou-based broker United Securities.

Measures on boosting investment would be limited, analysts said, saying it was unlikely that the government would relax restrictions on property markets.

On Wednesday, the World Bank cut its economic growth forecast for China this year to 8.2 percent from 8.4 percent. It urged the country to rely on a fiscal policy that boosts consumption rather than state investment to stimulate activity.

By: Fanny Zhang
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