China to avoid ‘policy cliff’ and support economic recovery

Monitoring Desk

BEIJING/SHANGHAI (Reuters) – China will provide necessary policy support for the economic recovery this year, to avoid a “policy cliff”, as small firms remain hard-pressed amid the pandemic, a senior official at the state planner said on Tuesday.

China’s economy picked up speed in the fourth quarter, with growth beating expectations as it ended a rough coronavirus-striken 2020 in remarkably good shape and remained poised to expand further this year even as the global pandemic rages unabated.

“We will have a good grip over the pace, intensity and effectiveness of macro policies to make sure the economic recovery remains stable and avoid a policy cliff,” Yan Pengcheng, director of General Office at the National Development and Reform Commission, told reporters in an online briefing.

“Considering some micro market entities will still need to undergo a period of recovery – some small firms just started to ‘get well from a serious illness’, while others have yet to regain their stamina – macro policies will continue to maintain necessary support (for them).”

Data out on Tuesday showed the services sector, which has been lagging the industrial sector, picked up momentum in the fourth quarter, with output growth in the accommodation and catering industry turning positive for the first time year-on-year since the pandemic struck.

“The GDP breakdown confirms that China’s rebound has become less dependent on investment-led stimulus in recent months, thanks to a broad-based recovery in the services sector,” said Julian Evans-Pritchard, senior China economist at Capital Economics.

Chinese leaders at a key agenda-setting meeting last month pledged to maintain “necessary” policy support for the economy this year, avoiding a sudden policy shift, pointing to smaller economic stimulus in 2021.

China is likely to cool credit growth and scale back fiscal stimulus this year to help stabilise debt levels, but policymakers are likely to tread cautiously to avoid derailing the recovery, policy insiders said.

Yan said some temporary and emergency measures rolled out during the pandemic, which helped stabilise the economy, cannot last in the long term, and China still need to achieve growth through reforms and innovation.

In addition to policy steps such as interest rate cuts and increased fiscal spending, the government has unveiled some targeted measures, including cheap loans for some sectors and deferred loan repayments for small firms.

Courtesy: Reuters