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Friday, September 11, 2015, 16:50

China could roll out trillion-yuan fiscal stimulus

By Xinhua

BEIJING - China is considering more than 1 trillion yuan in fiscal stimulus over the next three years, according to a latest report from the China International Capital Corporation (CICC).

A total of 1.2 trillion yuan (US$188 billion) to 1.5 trillion yuan may be taken from the government coffers to replenish the capital for investment projects, mainly those already approved by the authorities, the investment bank estimated.

Chinese bourses warmed to the news. The benchmark Shanghai Composite Index went up 0.07 percent to end at 3,200.23 points.

The Shenzhen Component Index rose 0.37 percent to close at 10,463.69 points. The ChiNext Index, which tracks China's NASDAQ-style board of growth enterprises, gained 1.05 percent to close at 2,060.51 points.

Total turnover on the two bourses was 516.1 billion yuan (US$81.1 billion), down from 610.7 billion yuan the previous trading day.

Winners outnumbered losers 608 to 293 in Shanghai, and by 1,014 to 357 in Shenzhen. Stocks in the textile and property sectors gained the most.

According to the report, the stimulus is likely to drive a total potential investment of 5 trillion yuan to 7 trillion yuan in the next three years, or 2.5 percent to 3.4 percent of the 2015 GDP each year.

Investment projects will be funded by not only policy banks but also commercial lenders and private investors via the public-private partnership.

The report came after the Ministry of Finance put forward multiple fiscal policies aimed at stabilizing growth on Tuesday, such as coordinating funds to accelerate project construction, activating idle money and widening tax breaks.

The move indicated that China's fiscal policy will be "firing on all cylinders to support growth", the CICC said.

China is battling a property downturn, industrial overcapacity, sluggish demand and struggling exports, which dropped growth to 7 percent for the first half of the year.

Fiscal policy has moved to center stage in growth stabilization, as the room for monetary loosening became more constrained after several interest rate cuts and fiscal deposits continued to increase, according to the CICC.

Yuan strength

The CICC report said the moves will enhance the usability of yuan, also known as RMB, both as a reserve currency and as a settlement currency.

China will open its onshore inter-bank FX market to foreign central banks and set up a cross-border yuan payment system before the end of 2015, Chinese Premier Li Keqiang said at the Summer Davos Forum in the northeastern city of Dalian on Thursday.

On the same day, Shanghai-based newspaper China Business News reported the central bank has eased restrictions for two-way cross-border RMB fund pooling, which allows multinational corporations to transfer yuan between their domestic and overseas entities.

Opening the FX market makes it easier for foreign central banks to hold RMB assets, while the upgrade of the cross-border RMB fund pooling scheme allows smoother flow of such funds, the CICC said.

Those measures will also buoy market sentiment and help mitigate the depreciation pressure for the yuan, according to the report.

The yuan's offshore spot rate against the US dollar strengthened over 1 percent on Thursday, the biggest daily gain in years.

Official data on Friday showed China's new yuan-denominated lending in August rose to 809.6 billion yuan (around US$125 billion), up 49 billion yuan from a year earlier.

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