CHINA has room to increase its fiscal deficit ratio to between 4 and 5 percent to more effectively boost the economy, domestic media quoted a central bank official as saying.

    China’s current fiscal deficit target is 3 percent of gross domestic product (GDP), up from an actual 2.4 percent in 2015.

    But there is room for a slight increase, the Shanghai Securities News quoted Sheng Songcheng, director of the Survey and Statistics Department at the People’s Bank of China (PBOC), as saying at a forum Saturday.

    While monetary policy is effective, it is limited and requires coordination with a proactive fiscal policy, Sheng was quoted as saying at the forum, where he also suggested that China increase its government bond issuance.

    Sheng also warned that China has already fallen into a “liquidity trap,” where increased money supply is being absorbed by firms that are not in turn investing the cash.

    First-half bank lending hit a record and government spending jumped 20 percent in June.

    At the same time, growth in investment by private firms fell to a record low in the first half, as businesses retrenched in the face of the sluggish economic outlook and weak exports.

    There are increasing signs that Chinese companies are hoarding cash, signaling a poor growth outlook, economists at ANZ said in a note last week after June money and lending data.

    June M2 grew 11.8 percent year on year, more than markets had expected but still below the PBOC’s target of 13 percent. M1 surged 24.6 percent, suggesting a faster increase in corporate demand deposits than time deposits, ANZ said.

    Unless the private sector snaps back to life, more fiscal and monetary easing will be needed to keep China’s economy on an even keel, HSBC economists said in a note yesterday.(SD-Agencies)