BEIJING (Reuters) – China should ramp up its fiscal stimulus to spur economic growth and set a firm inflation target to prevent the country falling into a “low inflation trap”, a central bank policy adviser said in remarks seen on Friday.
China’s leaders signalled this week that fiscal support for the rest of the year will “focus on consumption”, aiming to boost incomes and social welfare, following plans to use funds from government bonds to finance trade-ins on consumer goods.
“We need to increase the intensity of macroeconomic policies, especially to implement the already arranged fiscal expenditures as soon as possible,” Huang Yiping, a policy adviser to the People’s Bank of China (PBOC), said in an article published by Peking University’s National School of Development on its Wechat account.
Huang, an influential Chinese economist who heads the school, suggested that if central bank and finance ministry policies are too conservative in an effort to try to maintain policy stability, they could end up undermining economic stability.
“If policies are conservative, once they affect economic stability, there will be no more policy stability,” he said.
China should quicken fiscal spending and policymakers should shift their stance from prioritising investment over consumption, said Huang, calling for steps to allow more migrant workers to settle in cities and give cash handouts to residents.
The world’s second-largest economy grew at a slower than expected 4.7% in the second quarter and faces deflationary pressures, with retail sales and imports significantly underperforming industrial output and exports.
The government has set an economic growth target of around 5% for 2024.
The government should set a “rigid” annual consumer inflation target of 2%-3% and elevate the goal of achieving moderate inflation to be on a par with the economic growth objective, Huang said.
“If we really fall into the “low inflation trap”, the consequences will be very serious,” he said.
China has long set an inflation target of about 3%, but actual price rises have significantly missed the target in recent years.
Economists says that persistently low inflation can drag on economic activity and make it more difficult for policymakers to promote growth.
(Reporting by Kevin Yao; Editing by Neil Fullick)
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