In all, Li rolled out tax cuts worth almost 2 trillion yuan ($298 billion) and pledged further stimulus ahead. While that emphasis on stronger fiscal policy can be seen as a loosening from last year’s vow to curb financial risks and trim the budget, the overall goal is still to buffer the economy without letting debt accelerate once more. That’s a balancing act that will be severely tested should any new threats to growth appear.
“It’s a big fiscal push,” said Michael Spencer, global head of economics at Deutsche Bank AG in Hong Kong. “There’s a reluctance to just turn on the infrastructure tap if they don’t need to.”
Li warned that China faces a graver and more complicated environment this year. He’s trying to rekindle lending to the private sector, mindful that the total debt pile is approaching 300 percent of GDP. “China must be fully prepared for a tough struggle,” he said.
Fiscal stimulus is in fashion and why should China be any different? The global economy is transitioning from a period of synchronised global monetary expansion to fiscal expansion. That is also stimulative but is likely to have more of an effect on consumer demand that central bank balance sheets.Click HERE to subscribe to Fuller Treacy Money Back to top