Beijing has Narrower Room to Use Policy Tools to Boost Economy, Agency Says

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Beijing has Narrower Room to Use Policy Tools to Boost Economy, Agency SaysA top economic planning agency has said that China’s room to use policies to boost the economy is getting less and less as it tries to prevent a looming economic slowdown in 2014.

The government rolled out plans last week to reduce taxes for small businesses and speed up railway and affordable housing construction in order to bolster the flagging economy.

“Policy fine-tuning is required to even out economic volatility, but room for the government to influence growth is narrowing,” said the National Development and Reform Commission in a report that analyzes the implementation of China’s 12th five-year plan (2011-2015).

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“Against the backdrop of rising local government debt burdens, high debt ratios and rapid money supply growth and excessively large social financing, room for simply using fiscal and monetary policy to manage demand and promote economic growth is getting smaller and smaller,” the NDRC added. “Improper operation will exacerbate overcapacity and delay structural adjustments, increase inflationary pressures and accumulate debt risks.”

Last year, Beijing rolled out plans to shift the economy from an export and investment-driven one to one that is based on innovation, services and consumption, which it views as more sustainable in the long-run.

A Reuters survey of economists forecast economic growth in the first quarter to average 7.3 percent, a five-year low, which is also less than 7.7 percent growth recorded in 2013.

A huge segment of the market believe that a further decline in economic growth and increasing capital outflows will prompt the central bank to slash the banks’ reserve requirement ratio later in 2014.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com