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China's Vice Premier Liu calls for more action to support the economy By Reuters

© Reuters. US Chinese Officials Conducting Trade Talks at Washington US Attorney's Office

By Zheng Li and David Stanway

SHANGHAI (Reuters) – Chinese regulators should increase support for the economy and keep the financial system sufficiently liquid. Vice Premier Liu He said Thursday that Beijing will soon present additional strategies to boost growth amid rising US trade pressure.

Beijing has many policy tools and is able to deal with various challenges, Liu said at a financial forum in Shanghai.

Despite numerous supportive measures and political easing since last year, China's cooling economy is still struggling to regain its footing, and the sudden escalation of tensions between the US and China last month has sparked fears of a trade war could break out could trigger a global recession.

Liu's comments came after a day, after data showed that credit growth in China was weaker than expected, reinforcing market expectations that more monetary easing is needed. Factory activities declined in May and imports fell the most in nearly three years, highlighting weak demand.

"At present we have some external pressures, but these external pressures will help us to boost our confidence in innovation and accelerate the pace of high-speed development," said Liu, who is also the negotiator in the EU's trade talks between the US and US China.

The government will introduce stronger measures to promote reform and opening up, Liu added.

Yi Gang, head of the People's Bank of China, said last week that there was "tremendous" scope for policy adjustments as the trade war deteriorated.

"We have plenty of room for interest rates, we have a lot of room in the required reserve ratio, and for the Fiscal and Monetary Policy Toolkit, I think the room for adjustment is enormous," Yi said.

Earlier on Thursday, China Daily, citing economists, said China is expected to adjust money and lending supply in the coming weeks, including interest rate cuts or reserve requirements to counteract "downside risks" as trade tensions escalate.

Further cuts in banks' reserve requirements (RRRs) were expected earlier this year, especially after trading. The conflict escalated last month. Both sides raised tariffs on each other's goods and Washington is threatening even more.

Last month, the PBOC stepped up its efforts to boost credit growth and business activity and announced a three-step reduction in the reserve requirements of regional banks in order to reduce financing costs for small and private companies.

Since early 201

8, six RRR cuts have now been made.

Contrary to earlier downturns, however, the central bank has so far had no desire to cut interest rates. Analysts believe that more aggressive measures are being held back, as it is feared that such a move may add a mountain of debt left over from earlier stimulus measures.

Greater easing could also trigger capital outflows and reduce easing pressure Nearly 3 percent against the dollar since the flare-up in the last month.

Sources told Reuters in February that the PBOC saw a rate cut as a last resort. However, some analysts believe one or more cuts are likely as the trade dispute gets out of hand and the US Federal Reserve begins to lower its key interest rates, giving the PBOC more leeway In June, liquidity became scarcer and authorities wanted to accelerate credit growth, to achieve the goals for economic growth.

Beijing has set a growth target of 6 to 6.5 percent for this year, down 6.6 percent in 2018, the slowest rate of expansion the country has seen in nearly 30 years.

Bank of America analysts Merrill Lynch (NYSE 🙂 believe China's GDP growth could drop to 5.8 percent this year and 5.6 percent in 2020 as the trade war intensifies.

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