SHANGHAI (Reuters) – A Chinese central bank official said tax cuts would be a more effective way of stimulating the economy than interest rate cuts, as companies are still unwilling to invest, the National Business Daily reported on Friday.

Sheng Songcheng, director of the Survey and Statistics Department at the People’s Bank of China, said companies were caught in a liquidity trap and regulators should focus more on fiscal policy adjustments, the paper said.

“The most important reason for the deviation between the increase in M1 (money supply) and the growth of the economy is that enterprises lack the willingness to invest,” Sheng was quoted as saying.

The comments by the statistics official appeared to be largely a reiteration of remarks he was reported to have made last weekend, when he also said China has room to increase its fiscal deficit ratio to between 4 and 5 percent of GDP to boost the economy more effectively.

Despite six interest rate cuts since late 2014, China’s economy has continued to slow, indicating monetary policy has become less effective at boosting growth than in the past, economists have said.

Many market watchers were already scaling back expectations of further cuts in the policy rate last year, noting that such moves would put unwanted additional pressure on the weakening yuan currency and risk more capital outflows. The yuan has more recently softened to 5-1/2 year lows.

Economists expect only one more rate cut by early next year, a Reuters poll showed on Thursday, little changed from the last few surveys. They have also tapered expectations for more cuts in banks’ reserve requirements but still see such a move this year.

Investors’ perceptions that China was leaning more heavily on fiscal stimulus to spur growth were reinforced by an article in the official People’s Daily in May, which quoted an “authoritative person” who warned about the dangers of relying too much on debt-fueled stimulus.

The People’s Daily, the official paper of the ruling Communist party, quoted the person as saying excessive credit growth could heighten risks and trigger a financial crisis if not controlled properly.

Stronger-than-expected economic growth in the second quarter may also have dashed investors’ hopes for imminent monetary policy easing. China stocks closed nearly 1 percent lower on Friday.

Data last week showed China’s economy grew 6.7 percent in the second quarter as a government spending spree and housing boom boosted industrial activity, but a slump in private investment growth is pointing to a loss of momentum later in the year.

Some other economists have also advocated tax cuts and other relief to relieve strains on private companies.

The paper did not say whether Sheng favoured cutting any specific taxes. He had argued taxes were high, especially for small and medium sized businesses, in a report earlier this year.

China is expanding tax reforms by replacing a business tax with a value-added tax (VAT) this year.

(Reporting by David Stanway; Editing by Eric Meijer and Kim Coghill)

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