China's central bank governor said there was room to further reduce banks' reserve requirements, and pledged to use monetary policy to support consumer prices.
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BEIJING – The heads of China's central bank and economic planning agency signaled that authorities would be willing to take further steps to support growth, but did not announce any large-scale stimulus plans.
Pan Gongsheng, governor of the People's Bank of China, told reporters on Wednesday that there was scope for further reduction in banks' reserve requirements – that is, the amount of cash banks need. He also pledged to use monetary policy to support consumer prices “moderately,” according to a CNBC translation of his Mandarin remarks.
Ban was speaking at a press conference with other key leaders of the country's economy and financial sector on the sidelines of this year's annual parliamentary meetings.
The leaders defended China's growth target of about 5% for this year, while committing to a fiscal deficit of 3%.
In the annual government work report released on Tuesday, Premier Li Qiang promised to transform the world's second-largest economy, which faces a slew of economic challenges including a real estate decline, high levels of local government debt, deflation, and weak consumer demand.
However, the work report fell short of many analysts' expectations for more stimulus and raised questions about how China will be able to achieve another year of growth of around 5%.
National GDP rose 5.2% in 2023, up from a low base in 2022 as China emerged from strict “elimination-Covid” measures. Consumer prices in China saw their biggest fall in January since 2009, while producer prices fell for a 16th month – underscoring the depth of the challenge Beijing faces in reviving the world's second-largest economy.
However, Pan said China has many monetary policy tools at its disposal, and pledged to push for lower financing costs in the coming months.
The People's Bank of China last cut reserve ratio requirements for banks by 50 basis points as of February 5, saving 1 trillion yuan ($139.8 billion) in long-term capital. The reduction was much larger than analysts expected.
Promote growth
This year, China will continue to “strengthen macroeconomic policies,” said Cheng Shanjie, head of the National Development and Reform Commission, the country's economic planning agency.
He noted how this will involve coordination of fiscal, monetary, employment, industrial and regional policies, as China continues to promote macroeconomic policy adjustment.
“Of course, we clearly see that in the process of achieving the expected goals, there are still many difficulties and problems,” Cheng said, according to a CNBC translation of his remarks in Mandarin.
He pointed out that “the external environment may become more complex and dangerous.” Domestically, he added, there could be problems with China's efforts to remove regional barriers to doing business by creating a “national single market.”
Cheng also said that there is fierce competition in some industries, difficulties in production and operation for some companies, as well as continuing risks in other areas. He did not mention the properties by name.
Chinese Minister of Commerce Wang Wentao said that foreign trade is facing a serious situation this year.
Cheng, head of the National Development and Reform Commission, said China's exports from January to February increased by 10 percent compared to last year, but he did not specify whether this was in Chinese yuan or US dollars. The next batch of trade data is due on Thursday.
Bonds, debt and domestic demand
At the press conference, Chinese Finance Minister Lan Fuan told reporters that the domestic debt situation was generally “controllable.”
He said local government debt levels had fallen following his ministry's work last year, and they were working on a longer-term mechanism to resolve the issue of hidden bad debts, while seeking to defuse the issue with a range of measures.
The special “ultra-long” Treasuries announced in Tuesday’s government work report were a rare surprise and only the fourth time they have been issued since the 1990s.
National Development and Reform Commission Chairman Cheng told reporters that these bonds will support technological innovation, energy papers and other key areas – which are among President Xi Jinping's “new productive forces” mentioned in the work report.
He also said that policy plans on equipment modernization will help boost consumption in the world's second-largest economy and create a market of more than 5 trillion yuan (about 694.5 billion US dollars). He said that this plan will include household appliances, vehicles, etc.
The Chinese economy has been affected by weak consumption, with a declining property market, debt risks and a decline in the stock market affecting confidence.
Boosting domestic demand represents the third task on the list of ten economic priorities in the Chinese government’s plan for this year, which confirms the seriousness of the matter.
For short-term investors, the primary concern remains the extent to which China's policymakers focus on ensuring growth.
“In order to achieve this [target of around 5%]The government work report proposed several key policies, Huang Shuhong, head of the report's drafting team and director of the Research Office of the State Council, told reporters on Tuesday in Chinese, translated by CNBC.
“If the Chinese economy faces unexpected shocks in the future, or if the international environment undergoes unexpected changes, we still have backup tools in our policy toolbox,” he said.
