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China is set to launch further waves of monetary and fiscal easing, including possible cuts of over CNY1 trillion in taxes and fees, as it de-emphasises a campaign to lower leverage in order to support companies facing continuing pandemic headwinds, weak consumption and imported inflation, former National Development and Reform Commission Secretary General Han Yongwen told MNI in an interview.

Speaking before the People’s Bank of China cut two major policy rates on Monday, Han said the government’s 2022 fiscal deficit target, usually announced in March during the Two Sessions conference, should maintain an expansionary bias at around 3.2% of GDP.

The fiscal deficit and an increased and front-loaded CNY1.46 trillion quota for local government special bonds will power investment, particularly in the first quarter when the economy’s performance may suffer from the base effect comparison with 18.3% growth recorded in the equivalent period of 2021, said Han, now vice chairman of the China Center for International Economic Exchanges, run by the NDRC.

“There is still space for a further tax and fee cut, much more than CNY1 trillion, which will mainly target small and medium-sized companies, manufacturing and green development,” said Han.


The PBOC could also further cut banks’ reserve requirement ratios, as well as potentially money market policy rates and the benchmark lending prime rate, to ease borrowing costs for downstream manufacturers and services firms contending not only with the effects of the Covid pandemic but also imported inflation, he said.

The central bank on Monday cut its one-year medium-term lending facility rate by 10 basis points to 2.85%, the first reduction since April 2020, and lowered the seven-day reverse repurchase agreement rate to 2.1% from 2.2%. Last month’s 50 basis-point RRR cut will leverage at least CNY5 trillion for the economy, Han said.

The increasingly hawkish stance of the U.S. Federal Reserve will not deter the PBOC from easing, as Chinese inflation is at moderate levels and capital outflows can be controlled, he said. (See: MNI: PBOC Urged To Seize Dovish Chance Before Fed Hike (Rpt))


Slowing growth in debt helped China’s macro leverage ratio drop 5.3 percentage points in the first three months of last year, according to the National Institution for Finance and Development. This gives authorities margin for further monetary easing even as they look to avoid any accumulation of long-term systemic risk, said Han, who expected the ratio to have declined by over 6 percentage points in all of 2021.

Slowing issuance of local government special bonds in the first half of last year came as officials pushed for deleveraging in the belief that the pandemic was easing and the economy would bounce back quickly, but it is now clear that both investment and consumption are still far from normal levels, he said.

Stimulus should enable fixed-asset investment to grow by over 6% this year, compared to 5.2% in the first 11 months of 2021, Han said. Some 40% of this investment will feed into higher consumption, he added.


A drive by Beijing for more stimulus could however increase difficulties for some local governments, whose fiscal health has deteriorated during the pandemic and as land sale revenues fall, said Han, also a former vice governor of Hunan Province.

“The key will be to push for industrial restructuring via boosting manufacturing and producer service sectors, to create new sources of growth and speed service sector recovery,” he said, adding that central authorities will continue to curb growth in local governments’ implicit debts.

While major central banks are increasingly concerned about the danger that an Omicron outbreak could cause further disruption in China’s crucial supply chains, feeding global inflation, Han said the country’s zero-Covid policies had proved effective and would stay.

“I am confident that the impact of the pandemic will be limited for China’s supply chains,” he said, noting that authorities have prioritised economic, social and political stability this year, and are increasingly emphasising the domestic economy under the dual circulation strategy.


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