China sees less room to fight slowdown

Beijing: China has less and less room to rely on policy tools to support the economy, the country’s top economic planning agency said on Wednesday, as the government tries to arrest a protracted slowdown this year. Last week, the government announced plans to quicken construction of railways and affordable housing, and cut taxes for small firms to support the economy.

Policy fine tuning is needed to smooth out economic volatility, but room for the government to underpin growth is narrowing, the National Development and Reform Commission (NDRC) said in a report evaluating the implementation of the country’s 12th five year plan (2011-2015).

“Against the backdrop of rising local government debt burdens, high debt ratios and rapid money supply growth and excessively large social financing, room for simply using fiscal and monetary policy to manage demand and promote economic growth is getting smaller and smaller,” the NDRC said.

“Improper operation will exacerbate overcapacity and delay structural adjustments, increase inflationary pressures and accumulate debt risks,” it said.

Beijing’s refusal to detail its spending plans reflects a concern that it could be seen as abandoning reforms in favour of pump-priming, such as the massive 4 trillion yuan spending spree it pursued in the wake of the 2008-2009 global financial crisis.

Chinese leaders unveiled plans last year for sweeping reforms aimed at steering the economy away from its dependence on investment and exports to one driven more by consumption, services and innovation, which they consider more sustainable.

Economists polled by Reuters expect first quarter gross domestic product figures due on April 16 to show growth slowing to a five year low of 7.3 percent, compared with 7.7 percent for the whole of 2013. Many analysts believe a further slowdown in growth, coupled with capital outflows, could prod the central bank to cut banks' reserve requirement ratio (RRR) later this year.

The NDRC said monetary policy should effectively prevent inflation and maintain financial market liquidity, and keep market interest rates at appropriate levels.