China plans to put more money into infrastructure projects and ease borrowing curbs on local governments to help soften the blow to the economy from the Sino-US trade war, policy sources have said.
China's trade war with the US has clouded the outlook for the world's second-largest economy and roiled financial markets. A sharper slowdown in the Chinese economy could fuel job losses, a concern that Beijing has raised.
But Chinese leaders have ruled out another round of strong fiscal stimulus, wary of inflaming debt risks. A 4-trillion-yuan ($590 billion) spending package in 2008-09 shielded China's economy from the global crisis but saddled local governments and state firms with piles of debt.
The amount of infrastructure spending this time will depend on how the trade war evolves, said four sources who are familiar with government policy. The sources are involved in internal policy discussions but are not part the final decision-making process.
"In the short term, the most effective way is to boost infrastructure investment," said one policy insider who advises the government, speaking on condition of anonymity. "We will let fiscal policy play a bigger role in supporting the economy as monetary policy is less effective."
The economy has already felt the pinch from Beijing's multi-year deleveraging drive that has driven up corporate borrowing costs and delayed government projects.
Economic growth slowed slightly to 6.7% in the second quarter -- still above the official 2018 growth target of around 6.5%.
However, the trade row, a slowing domestic property market and reduced outbound shipments have sharply increased the risks to China's economic outlook.