Chinese regulators should step up support for the economy and keep ample liquidity in the financial system, Vice Premier Liu He said on Thursday, suggesting Beijing would soon unveil more policies to bolster growth amid rising U.S. trade pressure.
Beijing has plenty of policy tools and is capable of dealing with various challenges, Liu said at a financial forum in Shanghai.
Despite a slew of support measures and policy easing since last year, China's cooling economy is still struggling to get back on firm footing, and last month's sudden escalation in U.S.-Sino tensions has raised fears of a full-blown trade war that could trigger a global recession.
Liu's comments came after a day after data showed China's credit growth was weaker than expected in May, reinforcing market expectations that more monetary easing is needed. Factory activity contracted in May and imports fell the most in nearly three years, highlighting soft demand.
"At present, we do have some external pressures, but those external pressures will help us boost our self-reliance in innovation and accelerate the pace of high-speed development," said Liu, who is also the lead negotiator in the U.S.-China trade talks.
The government will roll out more strong measures to promote reforms and opening up, added Liu.
People's Bank of China chief Yi Gang said last week that there was "tremendous" room to make policy adjustments if the trade war worsens.
"We have plenty of room in interest rates, we have plenty of room in the required reserve ratio rate, and also for the fiscal, monetary policy toolkit, I think the room for adjustment is tremendous," Yi said.
Earlier on Thursday, China Daily, citing economists, said China is expected to adjust money and credit supply in coming weeks, including cuts to interest rates or reserve ratio requirements, to counter "downside risks" if trade tensions escalate.
Further cuts in banks' reserve requirement ratios (RRR) were already expected this year, especially after the trade conflict escalated last month. Both sides hiked tariffs on each other's goods, and Washington is threatening more.
Last month, the PBOC stepped up efforts to increase loan growth and business activity, announcing a three-phase cut in regional banks' reserve requirements to reduce financing costs for small and private companies.
It has now cut six RRR times since early 2018.
Unlike previous downturns, however, the central bank has been reluctant to cut benchmark interest rates so far. Analysts believe it is held off on more aggressive measures due to concerns that such a move could risk adding a mountain of debt leftover from past stimulus sprees.
More forceful easing could also trigger capital outflows and add pressure on the Chinese yuan, which has slid nearly 3 percent against the dollar since the trade flare-up last month.
Sources told Reuters in February that the PBOC considered a benchmark rate cut a last resort. But some analysts now think one or more cuts are likely if the trade dispute spirals out of control and the U.S. Federal Reserve starts cutting its rates, giving the PBOC more room to manoeuvre.
Citing experts, China Daily said financial institutions were facing tighter liquidity in June, and said authorities want to spur faster credit growth to meet economic growth targets.
Beijing has set a growth target of around 6 to 6.5 percent for this year, easing from 6.6 percent in 2018, which was the slowest rate of expansion the country has seen in nearly 30 years.
Analysts at Bank of America Merrill Lynch believe China's GDP growth could fall to 5.8 percent this year and 5.6 percent in 2020 if the trade war intensifies.