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Covid-19: Chinese finance minister announces shift in fiscal policy

By Lawrence Gash

Liu Kin vows to 'cut unnecessary government expenses'

The People's Bank of China

Despite the Covid-19 epidemic killing upwards of 1,700 people, and causing Chinese business, industry and tourism to grind to a temporary halt, many investors both within and beyond the mainland have not abandoned hope. This is due in large part to the widely held belief that the Chinese government will continue to stimulate the country’s economy through monetary easing and fiscal stimulus.

However, that Beijing will continue its proactive fiscal policy is increasingly unsure. The Chinese stock market fell 7.72 per cent when it recommenced trading for the first time since the Lunar New Year earlier this month, despite the People’s Bank of China’s (PBoC) near-record one-day liquidity injection of 1.2tn yuan ($174bn, £133bn).

By Goldman Sachs’ estimations the ongoing coronavirus epidemic could drive China’s GDP to, or below, zero. With the second-largest economy in the world continuing to falter despite repeated acts of stimuli, the country’s finance minister Liu Kin, has signalled that a form of austerity might be the answer instead.

Writing in the Communist Party of China’s main magazine Qiushi, Liu stated: "The nation will further perfect and implement measures this year to reduce corporate taxes and cut unnecessary government expenses."

Liu went on to observe that: “China will face decreased fiscal revenues and increased expenditures for some time to come, and the fiscal operation will maintain a state of tight balance.”

A comment-piece in another government propaganda news outlet, the Global Times, recognised the utility of fiscal stimulus and monetary easing but also noted: “Given the past experience and the financial risks currently facing China, a flood of spending programs seems no longer on the financial regulators' list of choices for stimulating the economy."

With government-affiliated news source recommending “governments at all levels” to prepare “for belt-tightening in the future” and predicting that “China would not stimulate the economy by rolling out another massive monetary stimulus,” the blithe confidence that Chinese investments will continue to be supported by government intervention could well be misplaced.

FURTHER READING: China's central bank announces stimulus to stave off lunar liquidity hole

FURTHER READING: China turns to QR codes to help contain coronavirus outbreak

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