China to keep policy support for economy to cope with challenges

BEIJING, Nov 10 (Reuters) – China will maintain policy support for the economy as it faces headwinds caused by a sluggish world economy and domestic structural adjustments, Premier Li Keqiang said on Tuesday.

Li said China faces challenges in hitting its goal to boost per capita GDP to $12,000 by 2020 to avoid the middle income trap, as growth is expected to remain sluggish and the domestic economy could be hampered by structural problems.

The government will rely on both fiscal and monetary policy to support the economy, while promoting innovations, Li said.

"We should made good use of the pro-active fiscal policy space and reasonably step up tax cuts," he told a meeting of experts and company officials.

"We should innovate monetary policy tools to help lower financing costs of companies," he said without elaborating.

President Xi Jinping has said that China must keep annual average growth of no less than 6.5 percent in the next five years to hit the country’s goal of doubling 2010 gross domestic product and per capita income by 2020.

China will also implement a policy of equalizing electricity prices for industrial and commercial users, he added.

The central bank has cut interest rates six times since late 2014, lowering reserve requirements, in a bid to support the world’s second-biggest economy.

The latest cuts in interest rates and bank reserve requirements came on Oct. 23, after data showed annual economic growth slowed to 6.9 percent in the third quarter – the weakest since the global financial crisis.

The central bank has been injecting cash into the banking system via its newly developed policy tools, including standing lending facilities (SLFs), medium-term lending facilities (MLFs) and pledged supplementary lending (PSL).

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Meanwhile, the government has been stepping up spending on infrastructure projects to support the slowing economy.

The government aims for a fiscal deficit of 2.3 percent of GDP this year, compared with last year’s deficit of 2.1 percent.

Finance Minister Lou Jiwei said in March the real fiscal deficit this year would be 2.7 percent, the widest since 2009, after taking into account unspent amounts from previously allocated funds.

 

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