MNI POLICY: China Pledges More Stimulus On Economic Headwinds

--PBOC, MOF and NDRC Outline Plans To Boost Economy

     BEIJING (MNI) - China's policymakers pledged Tuesday to conduct

counter-cyclical moves and push through tax cuts to boost growth as the economy

continues to face headwinds, officials from the People's Bank of China, Ministry

of Finance, Ministry of Finance and National Development and Reform Commission

said at a joint briefing on Tuesday.

     Here are main points from the briefing

     --The PBOC will guarantee reasonable and ample liquidity to push credit

expansion via guiding banks to increase loan provision for small and micro

businesses. The central bank stressed that previous moves, including five cuts

in reserve requirement ratio since the start of 2018 and targeted liquidity

tools, had worked as new RMB loans increased CNY2.64 trillion to CNY16.17

trillion as of the end of 2018, with rates also lower for borrowers. The central

bank will take measures to facilitate corporate bond issue and guarantee the

funding to the real economy, while monetary policy will still take note of the

inflation outlook, the PBOC said.

     --The PBOC was satisfied with the current macro leverage ratio, noting the

ratio dropped 0.6 percentage points year-on-year to 249.6% in the third quarter

2018. A flood of stimulus is not an option going forward, the central bank said,

arguing that M2 and social finance growth should be in line with the growth of

nominal GDP. Therefore, the central bank remains cautious over cutting its

benchmark interest rates, and risk being seen signalling an all-out easing. The

PBOC said it would look at current policies to assess the possibility of

benchmark cut.

     --The PBOC stressed that current easing policies, such as the RRR cuts,

would not pressure the yuan exchange rate, as moves are to boost economy and

benefit the stability of the yuan. The resilient economic fundamentals, along

with adequate forex reserves, would stabilize the yuan at a reasonable level,

the PBOC said.

     --The Ministry of Finance will launch larger tax cuts and increase fiscal

spending, particularly focusing on local government special purpose bonds to

support big infrastructure projects. The tax cut will focus on value-added tax

and a reduced tax burden of small and micro companies, the ministry said. MoF

will ask local governments to finish their annual bond issuance (quotas to be

set by govt in March) as early as September. Controls over local government debt

levels and issuance will continue to be enforced.

     --The country will continue to use debt-to-equity swaps to solve the

corporate debt problem, particularly state-owned companies' high leverage

levels, the NDRC said, adding that policy makers will work together to ensure

the funding support for the swaps, including use of capital unlocked by RRR

cuts. China will put weight on investment, particularly in infrastructure

involving the high-tech sector, the NDRC noted. At the same time, employment

will be a priority in the period of economic slowdown, the economic planner

stressed.

--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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