China's measures to revive its coronavirus-battered economy are forceful and targeted, Chinese Premier Li Keqiang said yesterday, stressing that Beijing will not flood the economy with liquidity.
"Just as water is important to fish farming, sufficient liquidity is important to economic development. But excessive liquidity will induce froth in the marketplace where some people may attempt to muddy the waters and fish for arbitrage," he said, using a Chinese analogy that describes people taking advantage of chaotic times to create confusion for their own benefit.
Mr Li was addressing China's post-Covid-19 recovery at his annual press conference after the closing of the country's annual national legislature meetings.
The economic shock caused by Covid-19 is unprecedented and calls for creative solutions, he said.
"I'm afraid we don't have ready experience to draw from. It's not something we can manage with ease," he acknowledged.
Mr Li pointed out that 70 per cent of the funds in the stimulus package he unveiled last week will go directly to supporting small and medium-sized enterprises, and spur consumption.
The central government will also lead by example by tightening its belt and cutting non-obligatory expenditures by 50 per cent. "The money saved will be primarily used to support companies and people's basic living needs," he added.
Some economists have said China's fiscal stimulus package was below expectations and are looking to Beijing to unveil further measures later this year.
"We have reserved policy room. Be it fiscal, finance or social security," Mr Li said yesterday.
"We can introduce new policies in a timely manner, and we will not hesitate to maintain the stable operation of the Chinese economy, which is paramount."
At the opening of the parliamentary meetings last week, Mr Li vowed to stabilise employment and bring the economy back on track with a slew of measures.
The country has raised its budget deficit target to at least 3.6 per cent of gross domestic product (GDP) this year, breaching the long-held red line of 3 per cent and above last year's 2.8 per cent.
It will issue special local government bonds worth 3.75 trillion yuan (S$744 billion) for spending on infrastructure and major projects like next-generation information networks, as well as 1 trillion yuan in special treasury bonds.
Mr Li also promised a further 500 billion yuan in tax and fee cuts to help prop up businesses, and the creation of more than nine million urban jobs.
China for the first time scrapped an economic growth target this year, citing the uncertainties brought on by the pandemic.
The country's economy shrank 6.8 per cent in the first quarter of this year, the worst on record.
Before the virus outbreak, economists had expected China to aim for a GDP growth of around 6 per cent. Last year, the economy expanded by 6.1 per cent, within the 6 to 6.5 per cent target it had set at the national legislature meetings in March last year.
Mr Li told reporters the failure to set a GDP growth target did not mean economic development was unimportant.
"It is simply impossible for the Chinese economy to stay immune to the impact of the novel coronavirus," he said. "This year, we decided not to set a specific GDP growth target. It is a decision informed by the realities on the ground."