China maintains proactive fiscal, prudent monetary policies

China will continue to implement proactive fiscal policy and prudent monetary policy in 2015, while noting policy flexibility to sustain economic growth, according to Premier Li Keqiang at the opening of Thursday's annual parliamentary session.[Special coverage]

Regarding macro-economic policy, the government will "pay greater attention to anticipatory adjustments, fine-tuning, and targeted regulation," Li said in his government work report.

Stressing the proactive fiscal policy will serve to "sustain the momentum of economic growth and increase economic returns," he said the country will raise its budget deficit to 2.3 percent of its gross domestic product (GDP) for 2015, up from last year's target of 2.1 percent.

Total government budget deficit is projected to be 1.62 trillion yuan (263 billion U.S. dollars), an increase of 270 billion yuan over last year, which consists of 1.12 trillion yuan of central government deficit and 500 billion yuan of deficit at local government levels.

China needs to find the right balance between managing debt and maintaining steady growth, and it should improve mechanisms for local governments to secure financing through bond issuance, according to the premier.

The prudent monetary policy will be "balanced between policy tightening and loosening," Li said.

The broad money supply, or M2, is forecast to grow by around 12 percent, lower than 13 percent of 2014, but the actual supply may be "slightly higher than this projection depending on the needs of economic development," Li added.

The government will adopt a flexible approach in the use of monetary policy tools such as open market operations, interest rates, reserve requirement ratio (RRR), and re-lending, to maintain steady growth in credit supply and social financing, the premier said.

Zhang Liqun, researcher with the Development Research Center of the State Council, a government think tank, said this year's macro-control hinges on "maintain stable growth," which means it differs from a strong stimulus, or from measures taken when the economy overheats.

Chinese economy expanded by 7.4 percent in 2014, its lowest pace in 24 years. A series of disappointing data at the start of the year -- when indices measuring industrial activity, consumer prices and trade for January slumped -- weighed on economic sentiment.

In face of market and economic fluctuations, macro-control measures shall be kept at a moderate degree and the effect of macro-control policy should be kept targeted, Zhang said.

China's central bank, the People's Bank of China (PBOC), cut the benchmark interest rates by 25 basis points Saturday, the second rate cut in a little over three months, aiming to lower financing costs for borrowers amid an economic slowdown.

The PBOC also slashed the RRR for banks in early February.

Frequent rate cuts stirred expectations of a monetary easing cycle. In a separate statement Saturday, the PBOC clarified that the rate cut does not signal a shift away from their neutral policy stance.

"There is plenty of room and many tools available for the government's macro-control adjustments and fine-tuning," Zhang said.

Aside from an array of monetary policy tools, policymakers could seek to boost traditional growth drivers like infrastructure and public services, Zhang said. There is also much room left to develop mass innovation and entrepreneurship as a new "engine" for economy, he added.