LONDON (ShareCast) - (Sharecast News) - China moved again to stimulate its economy on Tuesday, announcing larger tax cuts and pledging to maintain liquidity in the banking system, while fresh data revealed the slowest growth of credit in more than a decade.
The finance ministry announced that it will cut VAT rates for certain industries, including manufacturers, while giving tax rebates to others and reducing income tax on small and micro-sized companies.

Assistant finance minister Xu Hongcai told media in Beijing that the government was determined to ease the burden on small enterprises and the manufacturing industry.

This was co-ordinated with statements from two other agencies, with the People's Bank of China promising to keep liquidity "reasonably ample", while state planners at the National Development & Reform Commission said China will strengthen monitoring of its economic situation and improve its "reserve" of economic policies to target "a good start" to 2019.

The moves follow a loosening of banking reserve requirements by the PBoC earlier this month and comes amid a softening in economic data from the country. Beijing is planning to lower its growth target to 6-6.5% this year, versus the 6.6% pencilled in for 2018, sources told Reuters last week, with the new target set to be announced in March.

At the start of the week, car sales in China were revealed to have fallen for the first time in decades, while the foreign trade surplus jumped as exports and imports slowed more rapidly than expected.

Lending and credit data on Tuesday showed M1 money supply growth remained unchanged at a near all-time low and fell at an annualised rate of 1.0% in the three months to December compared with the previous three months. M2 supply picked up to 8.1% year-on-year, however.

There was a drop in new loans to 1,080 CNY from 1,250 in November, but the level was well above the consensus 820m CNY. Corporate borrowing rates slowed to an annualised rate of 9.9% in the three months to December compared with the previous three months, from 10.4% in the three months to November.

Looking at the low M1 money supply data, Freya Beamish, chief Asia economist at Pantheon Macroeconomics, said "the real economy is going to suffer badly". She said the drop in new loans was "largely seasonal" but the slowing in corporate borrowing was "not the desired result".

Despite the coordinated effort by policymakers to provide reassurance that more stimulus is in the pipeline, the data showing growth of outstanding credit still at its slowest pace in more than a decade "suggests that the economy won't turn for several months yet, even with increased policy support", said Chang Liu at Capital Economics.

With some commentators saying the boost could be worth up to 1.2% of GDP, Jamie Constable at N+1Singer said: "They can't increase debt at local levels so this time it looks like central government finances will take the strain but not through spending on infrastructure this time. There is also talk of support for auto sales and white goods. More a boost for consumer led stocks than the miners."

However, mining stocks were almost all in the green, apart from those focused on precious metals.

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