(Yicai) Nov. 17 -- The cabinet’s recent call to step up implementation of China’s major national strategies and bolster security capacities in key areas following last month’s muted economic figures raises the prospect of further cuts to interest rates and the amount of cash banks must hold in reserve, according to analysts.

The government has ample room for policy intervention, said Wang Qing, chief macro analyst with Golden Credit Rating International. Measures to stabilize growth will be strengthened before year-end, with a new round of interest rate and reserve requirement ratio cuts expected, he said.

The People's Bank of China last reduced benchmark lending rates in May, when it lowered the one-year loan prime rate to 3 percent and the five-year LPR to 3.5 percent. The central bank also cut the RRR by 0.5 percentage point to release about CNY1 trillion (USD140 billion) of long-term liquidity into the banking system.

To implement major national strategies and boost security capacities in key areas, an executive meeting of the State Council chaired by Premier Li Qiang on Nov. 14 called for stepped up efforts to improve project approval procedures, place greater emphasis on investment in innovation factors and intangible assets, and promote the development of new quality productive forces.

On the same day, the National Bureau of Statistics published economic data for October showing a slowdown that reflected weaker domestic and external demand and a high year-earlier base of comparison.

Industrial production rose 4.9 percent last month from a year ago, compared with 6.5 percent in September, while retail sales of consumer goods rose 2.9 percent, versus 3 percent the month before. In the first 10 months of the year, fixed-asset investment fell 1.7 percent to CNY40.89 trillion (USD5.76 trillion), compared with a 0.5 percent dip in the first nine months.

The so-called “two-emphases” -- namely, carrying out major national strategies and boosting security capacities in key areas  -- focus on urgent strategic and security needs and not only provide immediate impetus but also harbour immense long-term development potential, said Zhang Linshan, a researcher at the Academy of Macroeconomic Research of the National Development and Reform Commission.

They can effectively drive industrial structure upgrading, plug critical gaps in key areas, lift total factor productivity, help consolidate the economic recovery, and achieve China’s annual social and economic development goals, Zhang noted.

The cabinet meeting also mapped out measures to better align the supply and demand for consumer goods and further boost consumption. It highlighted the importance of using consumption upgrading to drive industrial upgrading, and proactively supporting businesses in expanding the supply of distinctive and high-quality consumer goods to achieve a higher-level dynamic balance between supply and demand.

Household consumption is moving toward higher-quality goods, which calls for upgrading both industries and consumer markets, said Chen Lifen, director of the Market Circulation Research Office of the Market Economy Research Institute of the Development Research Center of the State Council.

Virtuous Cycle

New demand should drive new supply, and better-quality supply should in turn create new demand, helping form a virtuous cycle between consumption and investment as well as between supply and demand, Chen said.

The cabinet meeting readout signals a shift in policy approach to achieving a higher-level dynamic equilibrium and positive interaction between supply and demand from “stimulating consumption” and “expanding production,” said Wu Chaoming, chief economist of Chasing Financial Holdings.

The cabinet also stressed improving the mechanism for project coordination and execution, urged efforts to actively leverage capital, and encourage greater participation by private capital.

Even though October’s economic data softened, the economy maintains its long-term growth trend, new quality productive forces are expanding, and there are many favourable conditions for meeting this year’s growth target, according to NBS spokesperson Fu Linghui.

She pointed out that the investment slowdown is driven by multiple factors including business caution and adjustments in the real estate sector.

The decline in fixed-asset investment was rare, and was caused by a slowdown in China's three major investment sectors, said Wang Qing, chief macro analyst with Golden Credit Rating International. However, after excluding the price factor, fixed-asset investment showed healthy growth, which has a positive pull on the economy, Wang said.

Editor: Futura Costaglione