Aims to spur infrastructure investment, backed by local government special bonds. PHOTO: REUTERS

China to ramp up spending to revive economy

Aims to spur infrastructure investment, backed by local government special bonds

Reuters March 19, 2020
BEIJING: China is set to unleash trillions of yuan of fiscal stimulus to revive an economy expected to shrink for the first time in four decades amid the coronavirus pandemic, while a planned growth target is likely to be cut, according to four policy sources.

The ramped-up spending will aim to spur infrastructure investment, backed by as much as 2.8 trillion yuan ($394 billion) of local government special bonds, the sources said.

The national budget deficit ratio could rise to record levels, they added. Beijing is likely to have to lower its economic growth target for 2020 given the prolonged impact of the pandemic, according to the sources involved in internal policy discussions, who declined to be named due to the sensitivity of the matter.

Chinese leaders are considering proposals from advisers to cut it to as low as 5% from the original target of around 6% agreed in December, they added.

However, the National Development and Reform Commission, the top state planner, the finance ministry and the central bank did not immediately respond to Reuters' request for comment.

The measures come at a time when private-sector analysts are slashing their growth forecasts for China to lows not seen since the Cultural Revolution ended in 1976, with a sharp contraction expected in the first quarter.

China's growth hit a near 30-year low of 6.1% in 2019, and the landscape has darkened significantly this year as the virus outbreak and strict containment have severely disrupted businesses.

"When the economy is suffering a big shock, it's necessary to step up fiscal policy support given that monetary policy will have limited effectiveness," a policy source said.

The central bank could, meanwhile, cut banks' reserve requirement ratios and interest rates further to help spur lending and lower funding costs for firms, the policy sources said.

China has already rolled out a raft of fiscal and monetary measures to provide credit and tax relief to companies, especially small businesses that have borne the brunt of the outbreak.


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