BEIJING (Reuters) – China has room to increase its fiscal deficit ratio to between 4 and 5 percent to more effectively boost the economy, official media quoted a central bank official as saying.

China’s current fiscal deficit target is 3 percent of gross domestic product (GDP), up from an actual 2.4 percent in 2015.

But there is room for a slight increase, the Shanghai Securities News quoted Sheng Songcheng, director of the Survey and Statistics Department at the People’s Bank of China (PBOC), as saying at a forum on Saturday.

While monetary policy is effective, it is limited and requires coordination with a proactive fiscal policy, Sheng was quoted as saying at the forum, where he also suggested that China increase its government bond issuance.

Sheng also reportedly warned that China has already fallen into a “liquidity trap”, where increased money supply is being absorbed by firms that are not in turn investing the cash.

Data on Friday showed that China’s economy grew 6.7 percent from a year earlier in the second quarter, slightly faster than expected as higher government spending and a housing boom boosted industrial output and construction-related activity and services.

But the numbers also fuelled concerns that China’s growth is becoming ever more dependant on government spending and debt. First-half bank lending hit a record and government spending jumped 20 percent in June.

At the same time, growth in investment by private firms fell to a record low in the first half, as businesses retrenched in the face of the sluggish economic outlook and weak exports.

There are increasing signs that Chinese companies are hoarding cash, signalling a poor growth outlook, economists at ANZ said in a note last week after June money and lending data.

“The divergence between M1 and M2 growth developed further (in June), indicating corporates’ preference is to hold cash. Since the economic prospect is weak, corporates do not spend cash for investment. This is consistent with the declining trend of fixed asset investment by the private sector.”

June M2 grew 11.8 percent year-one-year, more than markets had expected but still below the PBOC’s target of 13 percent. M1 surged 24.6 percent, suggesting a faster increase in corporate demand deposits than time deposits, ANZ said.

Unless the private sector snaps back to life, more fiscal and monetary easing will be needed to keep China’s economy on an even keel, HSBC economists said in a note on Monday.

(Reporting by Winni Zhou and Nick Heath; Editing by Kim Coghill)

Asia Times Financial is now live. Linking accurate news, insightful analysis and local knowledge with the ATF China Bond 50 Index, the world's first benchmark cross sector Chinese Bond Indices. Read ATF now. 

Join the Conversation

20 Comments

  1. Awesome site you have here but I was curious if you knew
    of any forums that cover the same topics discussed in this article?
    I’d really like to be a part of online community where I can get suggestions from other experienced individuals that share the same interest.
    If you have any recommendations, please let me know.
    Kudos!

  2. I’m more than happy to uncover this site. I need to to
    thank you for your time for this particularly fantastic read!!
    I definitely appreciated every little bit of it and I have you book-marked to
    see new information in your blog.

  3. Hey There. I found your weblog the usage of msn. That is a really well written article.

    I will be sure to bookmark it and return to read more of your helpful information. Thank you for the post.
    I will certainly return.

  4. An outstanding share! I’ve just forwarded this onto a friend
    who had been doing a little research on this. And he in fact
    ordered me breakfast due to the fact that I found
    it for him… lol. So allow me to reword this…. Thank YOU for the meal!!
    But yeah, thanks for spending the time to discuss this subject here on your site.

  5. Excellent blog! Do you have any helpful hints for aspiring writers?
    I’m hoping to start my own website soon but I’m a little lost on everything.
    Would you suggest starting with a free platform like WordPress or
    go for a paid option? There are so many choices out there that I’m completely confused ..
    Any recommendations? Bless you!

  6. Excellent beat ! I would like to apprentice whilst you amend your website, how could i subscribe for a weblog website?
    The account helped me a applicable deal. I were
    a little bit acquainted of this your broadcast offered vibrant transparent concept

  7. Can I simply say what a comfort to find somebody that genuinely understands what they’re discussing online.
    You definitely understand how to bring an issue to light and make it important.

    More and more people really need to look at this and understand
    this side of your story. I can’t believe you aren’t more
    popular given that you certainly have the gift.

  8. Hey there! Someone in my Myspace group shared this website with us so
    I came to give it a look. I’m definitely loving the information. I’m
    bookmarking and will be tweeting this to my followers! Excellent blog and wonderful style and design.

Leave a comment

Your email address will not be published. Required fields are marked *