China’s recent credit liberalization could be endangered by lax fiscal policies.
Yan Qingmin, assistant chairman at the China Banking Regulatory Commission, said the country’s recent credit loosening measures might not be as effective as expected without more active fiscal policies.
"Effects of credit loosening policies are waning as the demand for credit is weakening," Yan said. "Thus (we) urgently need support from fiscal and other policies."
He noted that China can implement more active fiscal policies to stimulate its slowing economic growth since the fiscal deficit and government debt are well below alarming levels. Yan said the asset quality of local government financing vehicles has also improved.
The government should also raise the thresholds for levying taxes on small firms and private businesses, Yan said. He suggested that local governments should help contribute to employees' social insurance payments to ease the burden of such payments on small firms.
China can't rely only on boosting liquidity to stimulate the economy because there is limited room for further credit supply, he said.
China recently took steps to loosen monetary policy by reducing interest rates for the second time in less than a month. Reliance on investment isn't sustainable, Yan said.
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