China on Tuesday signaled more stimulus measures in the near term as a tariff war with the United States took a heavy toll on its trade sector and raised the risk of a sharper economic slowdown.
Surprising contractions in China’s December trade and factory activity have stirred speculation over whether Beijing needs to switch to more forceful stimulus measures, though most analysts believe the government is wary of steps that could heighten debt risks and weaken the yuan. Data on Tuesday showed credit growth remains stubbornly weak, with several key gauges hovering around record lows despite months of policy easing.
China’s growth slowed in 2018 as a years-long campaign to reduce a mountain of debt and crackdown on riskier lending practices pushed up borrowing costs, dampening investment and hurting domestic demand. As the trade war with the United States escalated last year and hit exports, global financial markets went into a tailspin on worries about a sharper China slowdown, though many analysts believe an economic hard landing is unlikely.
China has lowered the level of reserves that commercial banks need to set aside for the fifth time in a year to spur lending, particularly to small and medium-sized firms. Beijing has also cut taxes and fees, and stepped up infrastructure investment to shore up the economy.
This year, China will step up fiscal expenditure and implement larger tax and fee cuts. The cuts will focus on reducing burdens for small firms and manufacturers, the finance ministry said in a statement on Tuesday.
But government efforts to channel more funds to the struggling private sector are facing big hurdles: banks are wary of more bad debts amid the long regulatory crackdown; and, many business are in no mood to make new investments in the face of faltering sales.
