Fiscal policy to help keep economy stable

Political Bureau meeting decides to avoid real estate market stimulus

China will not change its real estate policies to provide short-term stimulus to the economy, but instead will make fiscal policy more effective and "keep liquidity reasonably ample" in the second half of this year, participants in a top leadership meeting said on Tuesday.

"The long-term management mechanism of the real estate sector should be implemented and the industry will not be used as means to stimulate the economy in the short term," Xinhua News Agency reported on the meeting of the Political Bureau of the Communist Party of China Central Committee. Xi Jinping, general secretary of the CPC Central Committee, presided over the meeting.

"Proactive fiscal policy and prudent monetary policy should be well implemented," the report said. "Fiscal policy should be strengthened and made more effective, and the tax and fee reduction policy should be implemented more thoroughly."

Participants agreed that "monetary policy should be neither too tight nor too loose, and liquidity should be kept reasonably ample", the report said.

Analysts said the meeting signaled an important policy direction by showing that the government is shunning stimulation through boosting the property market, which is the right way to deal with economic weakening.

"It is a very correct decision," said Qu Tianshi, China economist for Bloomberg Economics. "The country should not blindly use the property market to stimulate the economy just because the economy is slowing down. Such practices ... exacerbate the risk of asset bubbles."

"The political bureau meeting said liquidity should be kept ample, meaning the banks' reserve requirement ratio (cash required as reserves) and the interest rate may be cut in the second half," said Liang Haiming, dean of Hainan University Belt and Road Research Institute.

Fiscal policy will be tilted toward small and mini-businesses and startups, with more tax and fee cuts tailored to their needs, said Liang, who is also chairman of the China Silk Road iValley Research Institute.

Robin Xing, chief China economist at Morgan Stanley, said there is further room for fiscal easing on infrastructure investment to stabilize growth in the coming two quarters.

"As prevailing uncertainty around trade will still weigh on private sector confidence, we continue to expect policy efforts to boost direct public spending. On the fiscal front, the pace of government bond issuance will likely remain relatively fast at around June's level in the coming couple of months to support infrastructure spending," he said.

The Political Bureau meeting said China's economy is facing "new risks and challenges" and the country will continue to carry out supply-side structural reform, boost domestic consumption, further open up the economy and stabilize foreign trade and employment.

On Monday, Xi said that "while difficulties and challenges in economic operations should be noticed, the economy's long-term improving trend remains unchanged".

"(China will) unswervingly deepen supply-side structural reform and foster new growth engines to push high-quality economic development in a down-to-earth manner," he said.