According to an article by China’s Finance Minister Liu Kun published in the official People’s Daily on Thursday, May 14, 2020, the country needed more active fiscal policy to stimulate its declining economy. The Minister viewed that pressures mounted up since the economy had been severely affected, which witness economy contracted of 6.8% in the first quarter (Q1), due to the coronavirus impact.
Kun’s Views on Fiscal Policy
The comments of the Kun, who previously served as director of Budgetary Affairs Commission of the National People’s Congress (NPC), were considered to be imperative since there emerged a growing market expectation of the government’s stimulus package. Analysts expected that the government is likely to announce a substantial new stimulus package soon to help businesses and households hit hard by the coronavirus outbreak in the annual NPC session, which will start on May 22.
China has introduced a wide range of fiscal and monetary support measures to support mitigating economic damages and health crisis since the outbreak of the virus intensified in January. Analysts had widely expected the NPC to approve more corporate relief measures, a higher fiscal deficit target, and allow local governments to sell more debt to fund infrastructure projects.
Liu asserted, “At present, China’s economic and social development is still facing great uncertainties, and downward pressure on the economy is still increasing,” adding that, “A more active fiscal policy is a practical need to hedge the downward pressure of the economy.”
Sharp Economic Contraction
Earlier, China reported that the economy of the country had contracted 6.8% in the Q1 from a year earlier, which highlighted that it experienced a sharp fall in its revenue for the first time since at least 1992. The virus outbreak and tough containment measures have forced to paralyze production of the country and spend more for authorities to mitigate mounting job losses.
The Finance Minister pointed out that the widespread pandemic has impacted widely on China’s fiscal revenue growth. He added, “In the first quarter of this year, fiscal revenue showed negative growth, it is expected that fiscal revenues for the full year of 2020 will be lower than the previous year.”
On Sunday, China’s government said that it would help support the economy and make monetary policy more flexible to fend off financial risks. Economists expected growth to recover to 1.3% in the current quarter as economic activity has slowly started shaping its form, despite warnings from analysts that the global economy is gradually rolling towards a deep recession.
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