Focus may shift toward fiscal side

While China's inflation level is not putting the brakes on the central bank's more relaxed monetary stance, financial authorities may tend to rely more on the fiscal side to help ease economic downward pressure in the future, according to analysts and experts.

Inflation data from the National Bureau of Statistics released earlier this month indicated little pressure ahead for China to pump more money to support the economy, as the consumer price index in October rose 2.5 percent, well below the government's target ceiling of 3 percent for 2018, and the producer price index climbed 3.3 percent in October from a year earlier amid sluggish demand.

Nevertheless, "the space on the monetary side is limited as we need to stick to our efforts to contain the leveraging ratio, while the room for fiscal action is larger－more tax cuts, especially in value-added tax, and a reduction in social security contributions can soothe economic concerns," said Ma Jun, an advisor to the People's Bank of China, in an interview with China Daily, adding to signs that the financial regulators do not intend to change course from current deleveraging moves.

While the central bank has lowered the reserve requirement ratio four times since the beginning of the year, a relatively mild increase in aggregated social financing in recent months adds more strains, as the supply of credit remained clogged, in particular for small and medium-sized enterprises.

Fiscal policy is expected to be the key focus of the next round of counter-cyclical adjustment, which can be fur-ther expanded through more tax cuts for corporate sectors, wrote economists with China International Capital Corporation in a note.

The fiscal deficit rate is expected to increase by around 1.5 percentage points in 2019 compared to this year's level, they said.

China lowered its fiscal deficit target to 2.6 percent of GDP for 2018 at the beginning of the year, down by 0.4 percentage points compared with 2017.

"The government has already made adjustments on the monetary side, keeping liquidity relatively loose and has been very much tolerant of the fluctuation of the yuan's exchange rate," said Zhang Bin, a senior researcher with China Finance 40 Forum, a non-government think tank.

Zhang added that there can be more space to let fiscal policy play a more important role to help reduce downward economic pressure, and expanding more channels for infrastructure projects in a more "proactive way".

Such efforts, expanding more viable channels to raise money, are quite crucial to soothe downward concerns at the time when the government has closed the door on illegal financing for infrastructure projects.