Daily Times

Chinese stocks jumped on Tuesday after the government signalled it would shift to a looser fiscal policy to shield the world’s second-largest economy from the worsening trade row with Washington.

After more than a year of pushing a crackdown on dangerous debt levels in the financial system, Premier Li Keqiang said the government’s “fiscal policy should be more active”, according to an announcement late Monday by the State Council, or Cabinet.

Analysts said the comments marked the beginning of a widely anticipated swing away from clamping down on credit and toward stimulating the economy.

Chinese policy-makers have had their hands full juggling competing priorities: transitioning the world’s second-largest economy to an expected era of slower growth, while also cleansing the financial system of dodgy credit.

That balancing act has become even more tricky as China’s export engine braces for the impact of US tariffs on Chinese goods, imposed by President Donald Trump to punish Beijing for “unfair” trade practices.

Li also stressed the government would accelerate plans to reduce taxes by more than 1.1 trillion yuan ($160 billion) and to issue 1.35 trillion yuan in local government special bonds for infrastructure.

Chinese stocks, buffeted for months by the trade discord, climbed Tuesday morning.

Shanghai’s key index was 1.37 percent higher in the late morning, while the Shenzhen exchange, China’s second market, was up 1.35 percent.

The yuan, however, weakened slightly, moving past 6.81 to the dollar.

The yuan has fallen to its lowest levels in a year due to the trade uncertainty and expectations of fiscal stimulus, which tend to increase money supply and weaken a nation’s currency.

Published in Daily Times, July 25^th 2018.