- Politburo’s wording, which still puts the onus on policy directions, signals moves to reach GDP growth target, restore confidence
China has vowed to step up macro policies and stabilize market confidence to ensure that leadership’s full-year economic growth goal is achieved as the economy faces “increasing negative influence” from the outside world and insufficient demand at home.
Wording out of a Politburo meeting on Tuesday suggested potentially more drastic policy support from Beijing over the remainder of the year, to boost the private sector and restore investor confidence, though not many details were unveiled from the high-level meeting.
The top leadership vowed to unleash domestic demand, pledged more macro support, warned against “vicious competition” among local companies, and called for the full implementation of policies among local-level officials, according to a meeting on Tuesday of the Chinese Communist Party’s 24-member Politburo, the party’s top decision-making body led by President Xi Jinping.
The politburo meeting focused on current challenges and pressing issues, reflecting China’s emphasis on stable growth, said Su Yue, principal economist for China at the Economist Intelligence Unit.
“The urgency of stimulating the domestic economy is highlighted by increased external pressures, including the potential return of [former US president Donald] Trump.”
Su anticipated that a 10 percent additional tariff increase on Chinese exports to the US could reduce China’s real GDP growth by between 0.3 and 0.4 percentage points, on average, in both 2025 and 2026, assuming that other factors remain constant.
A more decisive domestic-focused policy and fiscal expansion could mitigate some of these effects.
Additionally, Su noted how, at the meeting, “special attention was given to private enterprises, high-growth companies, and unicorn companies, with a renewed focus on protecting property rights”.
The country will make unwavering efforts to keep economic growth at around 5 percent after official data showed the recovery momentum slowing in the second quarter, leaders said at the meeting – a traditional midyear review of the economy during which leaders set the rest of the year’s policy agenda following the third plenum, which concluded earlier this month and set medium to long-term goals.
Pledging to roll out stronger macro policies and strengthen counter-cyclical regulation, officials said they would “reserve and launch a batch of new policy measures as early as possible” and accelerate the issuance and use of special bonds, according to an official readout from Xinhua news agency.
Emphasizing that “the task of reform and development in the second half of the year is a tough one”, officials acknowledged signs of divergence among different sectors and regions, and that there were still “relatively high risks in key areas”, including the housing market.
The world’s second-largest economy witnessed a 5 percent year-on-year increase in gross domestic product in the first half of the year.
But momentum took a hit in the second quarter as year-on-year growth slowed to 4.7 percent, with quarter-on-quarter growth at 0.7 percent, official figures showed.
Calling for a spirit of entrepreneurship, authorities reiterated their determination to bolster the private sector, stressing that they would “prevent and correct” the use of administrative and criminal means to interfere in economic disputes.
Su said that, in comparison, “there wasn’t much mention of state-owned companies, suggesting that the focus for the second half of the year will be on private enterprises”.
“We anticipate that these policy directions will have a mildly positive impact on confidence,” Su said.
Leadership also asked for industry “self-discipline” in light of growing competition among local companies in certain industries, such as the electric vehicle sector.
“[We should] strengthen the market’s ‘survival of the fittest’ mechanism and smooth the exit channels for backward and inefficient production capacity,” it said.
Su said this could be understood as “an official response to the issue of overcapacity, which helps alleviate trade pressures”.
Viewing the real estate sector as a major risk area, the meeting called for accelerating the formation of “a new model of real estate development” following the third plenum.
Vowing to boost investor confidence, the government intends to increase purchases of homes to be used as affordable housing, as a means of absorbing housing inventories.
It also pledged to pace up efforts in helping local governments resolve their debt problems, and to improve “the inherent stability of the capital market”.
“We should further mobilize the enthusiasm of private investment and expand effective investment,” it said.
Officials also flagged a trend of uneven regional growth, as the midyear performance of some key economic hubs turned out to be weaker than expected.
For example, Guangdong province, China’s largest provincial economy, posted a GDP increase of 3.9 percent in the first six months of 2024, 1.1 percentage points lower than the national average, official data showed.
That growth was largely supported by the province’s tech hub, Shenzhen, which saw its economy grow by a robust 5.9 percent for the period.
Ding Shuang, chief economist for Greater China at Standard Chartered, pointed to the importance of authorities’ plans for “timely” policy measures.
There is a lot of room in the second half of the year for fiscal stimulus, which was weaker than expected in the first half, and tools could include more special bonds and ultra-long-term treasury bonds, he added.
“Launching incremental policies means it may exceed the current budget,” Ding said. “Of course, whether they will be launched will depend on how far [China] is from achieving the annual growth target.”
Alicia Garcia-Herrero, chief economist for the Asia-Pacific region at French investment bank Natixis, said the Politburo conveyed a clear message that Beijing was going to stimulate the economy – an intention that was not clear when the third plenum released its communique two weeks ago.
“I think they feel comfortable [to stimulate the economy] because the RMB has held quite strong. I think this is good news for equity markets in China,” she said. “Now, of course, the question is, can these measures manage to revive the economy?”
Tuesday’s meeting also included a vow to prevent and control devastating floods and provide disaster relief as extreme weather events batter multiple areas in the country. It also stressed the importance of ensuring a stable energy and power supply during the peak summer season.
Separately, at a symposium with non-party members on Friday, President Xi said that China’s economy was encountering some difficulties and problems, but that “they can be overcome through hard work”, according to a Xinhua report on Tuesday.
Non-party personages should correctly view the current economic situation and work together to overcome various challenges and risks, continuing to propose ideas and contribute to China’s development goals, Xi said.
Courtesy: SCMP
