Liu Guoqiang, vice-president of the People's Bank of China, the country's central bank, told the media recently that the PBOC will keep the monetary policy toolbox wide open to maintain the stability of the monetary aggregate and avoid a credit collapse. While the policies need to be proactive, the parties carrying out these policies should take forward-looking actions to stay ahead of the curve. That explains the motives of the central bank in lowering the deposit reserve ratio and cutting interest rates.

At the same time, the Ministry of Finance has issued 1.46 trillion yuan ($230.1 billion) of new special bonds, requiring local governments to utilize them in the first quarter. And it is estimated that a total of 3.3 trillion yuan of special bonds will be issued and invested in the infrastructure sector this year.

By providing easy credit conditions, coupled with aggressive fiscal policy, the government expects to reverse market expectations. Over the past 20 years, such countercyclical policies and practices have proved effective to that end.

The pessimistic sentiment of the market largely originates from the service sector bearing the brunt of the impacts of the COVID-19 epidemic, and the authorities strengthening their supervision and regulation of the financial, real estate and internet industries.

Besides, China's household leverage ratio has risen sharply over the past two years, undermining consumption.

Although increased infrastructure investment through government leveraging can be directly reflected in GDP figures, it is difficult to trickle down to the service sector and ordinary workers, as it mainly benefits upstream industrial companies, such as the SOEs, which will unavoidably increase upstream commodity prices. That will have certain impacts on manufacturing and the service industries. As a result, the effect of boosting consumption through government investment and private investment is waning, as is the market's expectations of this approach, further weakening its effect.

The authorities should make their stimulus packages better targeted at boosting consumption and benefiting the micro, small and medium-sized enterprises and individual businesses of the private economic sector. Meanwhile, the country must effectively reduce the cost of housing, marriage and child-raising, as the net increase of population last year, 480,000, was the lowest since the early 1960s, which should be a wake-up call to policymakers that the main goal for stabilizing the economy is to maintain the vitality of market players, particularly those in the private sectors, which is the foundation of economic development and employment.

21ST CENTURY BUSINESS HERALD