China Banking Official : China Needs Fiscal Support as Credit Loosening Effects Wane
07/16/2012| 10:37pm US/Eastern
China needs more active fiscal policies among others to support its recent credit loosening measures, which may not be as effective as expected, Yan Qingmin, assistant chairman at the China Banking Regulatory Commission, wrote in an essay in Financial News Tuesday.
"Effects of credit loosening policies are waning as the demand for credit is weakening," Mr. Yan said. "Thus (we) urgently need support from fiscal and other policies."
There is room for more active fiscal policies to stimulate China's slowing economic growth as the nation's fiscal deficit and government debt are well below alarming levels, Mr. Yan said, adding the asset quality of local government financing vehicles has also improved.
Beijing started a campaign three years ago to regulate local government financing vehicles as the debt burden of local governments had raised concerns due to their investments in questionable infrastructure and industrial projects.
The government should further raise the thresholds for levying taxes on small firms and private businesses, Mr. Yan said, and suggested that local governments should help contribute to employees' social insurance payments to ease the burden of such payments on small firms.
The country can't rely only on boosting liquidity to stimulate the economy because there is limited room for further credit supply, he said.
China has recently taken steps to loosen monetary policy. Early this month, the central bank lowered interest rates for the second time in less than a month, after it moved in May to lower its reserve requirement ratio for banks.
Reliance on investment isn't sustainable, and decades of frenzied investment in industrial projects has resulted in investment inefficiency and serious imbalance of the economy, Mr. Yan added.
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