China to Support Economic Recovery, Plans to Avoid ‘Policy Cliff’

China will provide necessary policy support for the 2021 economic recovery to avoid a “policy cliff.” Small companies remain beleaguered amid the pandemic, said a senior official at the state planner on Tuesday.

The Chinese economy sped up in Q4, with growth beating expectations. It got through a rough COVID-19-stricken year in remarkably good shape. Furthermore, it remained poised to expand this year even with the global pandemic surge.

They will have a good grip over the pace, intensity, and effectiveness of macro policies. This is to make sure the economic recovery remains stable and avoid a policy cliff. This was a statement from Yan Pengcheng, director of the General Office at the National Development and Reform Commission. 

Considering some micro-market entities will still need to undergo a period of recovery, Pengcheng said. Some small firms just started to ‘recuperate from a serious illness.’ He said while others have yet to regain their stamina, macro policies will continue to maintain necessary support. 

Tuesday data showed the services sector picked up momentum in Q4. It has been previously lagging the industrial sector. Since the pandemic struck, output growth in the accommodation and catering industry turned positive for the first time year-on-year.

Policy Steps

In recent months, China’s rebound has become less dependent on investment-led stimulus. The GDP breakdown confirmed this. Julian Evans-Pritchard, a senior China economist at Capital Economics, said it was a broad-based recovery in the services sector.

Last month, at a key agenda-setting meeting, Chinese leaders pledged to maintain “necessary” policy support for the economy this year. They were avoiding a sudden policy shift, pointing to a smaller economic stimulus in 2021.

To help stabilize debt levels, China is likely to cool credit growth and scale back fiscal stimulus this year. Policymakers, however, are likely to tread cautiously to avoid derailing the recovery, policy insiders said.

Pengcheng said some measures rolled out during the pandemic helped stabilize the economy but cannot last in the long term. China still needs to achieve growth through reforms and innovation.

Aside from policy steps such as interest rate cuts and increased fiscal spending, the government has unveiled some targeted measures. These include cheap loans for some sectors and deferred loan repayments for small firms.

Meanwhile, in other Chinese news, China’s top financial regulator dismissed claims the nation is distorting its economy. That is by way of “state monopoly capitalism” as pressure grows on China to align more with global trade rules.

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