China can use reserve requirements, interest rates to support economy: premier

Chinese Premier Li Keqiang speaks at a news conference following the closing session of the National People's Congress (NPC) at the Great Hall of the People in Beijing
Chinese Premier Li Keqiang speaks at a news conference following the closing session of the National People’s Congress (NPC) at the Great Hall of the People in Beijing, China March 15, 2019. REUTERS/Jason Lee

March 15, 2019

BEIJING (Reuters) – China can use reserve requirements and interest rates to support economic growth, Premier Li Keqiang said on Friday, promising efforts to prevent a sharper deceleration as the world’s second-biggest economy expands at its slowest pace in almost three decades.

Li’s comments suggest Beijing will roll out more stimulus measures to ease the strain on businesses and consumers. China has already flagged billions of dollars in planned tax cuts and infrastructure spending, as economic momentum is expected to cool further due to softer domestic demand and a trade war with the United States.

The central bank has cut banks’ reserve requirement ratios (RRR) five times in the past year, with a two-stage RRR cut in January releasing a total of 1.5 trillion yuan ($223.23 billion) into the financial system.

Further cuts in the RRR had been widely expected this year, after fresh data pointed to persistently soft demand in the Asian economic giant, raising fears of a sharper slowdown.

Tax and fee cuts announced by the government will take effect from April 1, while social security fees will be reduced from May 1, Li told reporters at a news conference at the conclusion of the annual parliament meeting.

Value-added tax (VAT) for the manufacturing sector will be cut to 13 percent from 16 percent. VAT for the transport and construction sectors will be reduced to 9 percent from 10 percent.

Li also sought to soothe concerns that the tax cuts soon rolled out by the government will weigh on local finances, promising the central government will offer support to provinces in central and western China via payment transfers.

China is targeting a GDP growth range of 6 to 6.5 percent this year, down from 6.6 percent in 2018 – the slowest pace in 28 years.

(Reporting by Ryan Woo and Kevin Yao; Writing by Yawen Chen and Stella Qiu; Editing by Shri Navaratnam)

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