January 21, 2016 / 9:38 AM / 3 years ago

China has means to support economy, especially on fiscal side: regulator

BEIJING (Reuters) - China has the means to ward off a sharper slowdown in the economy, especially on the fiscal side, Fang Xinghai, vice chairman of China’s Securities Regulatory Commission (CRSC) said on Thursday at a session at the World Economic Forum in Davos.

Fang Xinghai, Director-General, International Economic Department, Office of the Central Leading Group for Financial and Economic Affairs of China attends the session 'Where Is the Chinese Economy Heading?' of the annual meeting of the World Economic Forum (WEF) in Davos, Switzerland January 21, 2016. REUTERS/Ruben Sprich

Concerns about China’s policymaking ability have shot to the top of global investors’ risk lists for 2016 after a renewed plunge in its stock markets and yuan currency stoked worries that the economy may be rapidly deteriorating.

“In China, we cannot afford to let the growth rate drop too sharply, because that will ignite a lot of financial problems,” said Fang.

“We have the means to do so, particularly on the fiscal side that we can expand quite a lot,” Fang said in a video feed monitored by Reuters.

China’s economic growth slowed to 6.8 percent in the fourth quarter, the weakest since the financial crisis, adding pressure on a government that is struggling to restore the confidence of investors.

Policy insiders expect China to lean more on the fiscal policy to support the slowing economy, probably widening this year’s budget deficit to about 3 percent of GDP, while further cuts in interest rates and bank reserve ratios are anticipated.

China’s stock market should do more to support the economy, Fang said, without giving details.

Fang reiterated that there was no basis for China to devalue the yuan, based on its economic fundamentals.

China will honor its commitment on reforms related to the yuan’s entry into the International Monetary Fund’s special drawing rights (SDR) basket, Fang said.

“Some people worry that once China entered into the SDR, it may not fulfill the commitment with respect to joining the SDR. I can assure you that worry is completely unnecessary,” Fang said.

In November, the IMF admitted the yuan to the SDR basket, a symbolic win for Beijing’s campaign for recognition as a global economic power.

Chinese officials have pledged to push forward economic reforms, despite recent heavy-handed steps to rescue the stock market and central bank interventions to support the yuan.

China’s structural reform will be a “massive undertaking,”International Monetary Fund chief Christine Lagarde told the same session.

Reporting by Beijing Monitoring Desk and Kevin Yao; Editing by Kim Coghill and Clarence Fernandez

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