The report suggests that current financial support and tax reduction policies should focus on crowding out ineffective and inefficient investments. Photo: iStock

According to Yu Yongding, a former member of the central bank’s Monetary Policy Committee, China’s most pressing issue is to halt the further decline in its economic growth by adopting an expansionary fiscal policy and a moderately loose monetary policy, Yicai.com reported.

Yu believes that without solid economic growth, long-term problems such as structural adjustments and economic system reform could hardly be promoted or pushed forward.

In addition to the growth rate, Yu thinks that China needs to maintain a reasonable inflation rate.

“Currently China’s inflation rate is only about 2%, and the economic growth rate continues to decline,” Yu said. In this case, the central bank should be allowed to adopt an expansionary monetary policy in order to achieve a higher nominal GDP growth.

Yu also fully believes that China has the right conditions to implement an expansionary fiscal policy.

“The ratio of China’s deficit-to-GDP ratio may exceed 3% in the future, and this is not an untouchable level,” Yu said. China should not be limited by the 3% ceiling, Yu stressed.

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.