China has announced a mix of tax cuts and infrastructure spending citing “uncertainty”, as it ramps up efforts to stimulate demand and counteract a weakening economy. The move, announced late Monday, came the same day as an injection of $74bn into the banking system by the People’s Bank of China through its Medium-term Lending Facility — the central bank’s largest ever, single-day cash injection using that tool.
The fiscal measures provide growing evidence policymakers are concerned about how the trade war with the US will exacerbate a domestic slowdown and follow a series of monetary loosening actions in recent weeks. The PBoC has already cut the required reserve ratio (RRR) for some banks three times this year in a bid to boost the money supply. Unveiling the measures, the State Council cited external “uncertainty” — an apparent reference to the escalating trade war with the US — while also seeking to downplay market concerns that China is backsliding on structural reform and reverting to its traditional playbook of heavy-handed credit stimulus.
“We must persist in not conducting ‘big water overflowing-style’ strong stimulus while . . . responding to uncertainty in the external environment and preserving economic activity within a reasonable range,” Premier Li Keqiang told the State Council.