With strength in consumer spending and services not yet enough to tip the balance, pressure is on the central government to embrace deeper fiscal deficits, at the risk of adding to the nation’s debt. For now, officials are focusing on expanding a local-government bond swap that’s given regional authorities a break on financing costs for past projects.
"Fiscal income growth has been sluggish yet the government continues to roll out numerous expenditure initiatives," said Victor Shih, author of the book "Factions and Finance in China: Elite Conflict and Inflation." "Deficits this year will likely be higher than anticipated; sustained growth in deficits will further erode investors’ confidence."
China needs annual growth of no less than 6.5 percent in the next five years to realize a goal to double 2010 gross domestic product and per-capita income by 2020, Xi has said....
China’s policy makers are in a tight spot, trying to maintain a floor under growth at the same time as reining in debt and reducing industrial capacity.
Further monetary easing may create "an even bigger credit bubble" and trigger potentially massive capital outflows if the U.S. Federal Reserve also hikes rates, says Shih. Because of that, the central bank may have more scope to cut banks’ required reserve ratio -- or the amount of their deposits they must lock away -- he said.More in Bloomberg
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