(Yicai Global) July 25 -- China may need an expansionary fiscal policy, such as using next year’s quota for local government special bonds in advance, to achieve its annual economic growth target of 5.5 percent this year, the chief analyst at Cinda Securities said.

China is quite likely to dip into next year’s quota early, according to Xie Yunliang, after 93 percent, or CNY3.4 trillion (USD504 billion), of this year’s was used in the first half. Some 66 percent of the special bonds sold so far in 2022 went toward infrastructure, he said.

The bonds are issued for specific projects, with repayment from income after a project is completed. In March, China set this year’s quota at CNY3.65 trillion, the same as last year.

There is no precedent for China using the following year’s quota in advance, Xie said, adding that it would increase local government debt. But next year, China’s economy is likely to stage a stronger recovery and appetite for bond issuance will wane, so the early use of next year’s quota would be a reasonable measure to support the economy, Xie added.

The chances of any sharp easing in China’s monetary policy has dropped, following interest rate hikes by the US and European central banks, said Lu Ting, chief economist at Nomura Securities in China.

“The spread between China and the US is widening, and the pressure on banks has intensified, so we no longer expect China to cut interest rates in the second half or next year,” Lu said.

Inflation is another factor restricting further easing of monetary policy. Last month, consumer prices jumped 2.5 percent from a year earlier, an increase of 0.4 percentage point on May. Analysts pointed out that as pork prices start rising again, there may be gains in the consumer price index in some months during the second half that are higher than the policy control target of 3 percent.

Editors: Dou Shicong, Tom Litting