BEIJING — Chinese leaders signaled on Tuesday that the stimulus measures needed to reach this year’s economic growth target will be directed at consumers, pointing to a “batch of incremental policy steps” to boost domestic demand.
The world’s second-largest economy missed growth forecasts in the second quarter and faces deflationary pressures, with retail sales and imports significantly underperforming industrial output and exports.
The Politburo, a top decision-making body of the ruling Communist Party, pledged at the end of its July meeting to pursue a “proactive” fiscal policy and reiterated the need for a “prudent” monetary framework.
“The meeting stressed that it is necessary to focus on boosting consumption to expand domestic demand, and the focus of economic policy should be more to benefit people’s livelihood and promote consumption,” the official news agency Xinhua said.
It said policies should increase residents’ income “through multiple channels” and enhance the “ability and willingness” of low- and middle-income groups to spend.
It also said economic measures should improve elderly and child care, and “weave a dense and solid social security net.”
As widely expected, no specific steps were announced, but the leadership gave instructions for a “timely launch [of] a batch of incremental policy measures.”
Politburo meetings set the direction of policies. Various government departments are expected to come out with policy announcements in the coming weeks and months as they seek to implement the latest guidelines.
The yuan, and Chinese stocks and bonds were little changed following the announcement.
After unshackling the economy from three years of Covid-19 restrictions, Chinese officials had hoped that stimulating the industrial sector would stabilize the job market and lead to higher wages and consumption.
What happened instead was that greater industrial capacity led to price wars and a cost-cutting race that kept wages depressed, fueling job uncertainty and adding to the pain among consumers caused by the property sector downturn.
“The government recognizes that domestic demand is weak,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
Authorities have already signaled in recent weeks a shift to a more supportive policy stance for the second half of the year.
China’s central bank surprised markets by cutting major interest rates last week, while the state planner said funds raised through this year’s ultra-long bond issuance would be shifted toward supporting a consumer goods trade-in scheme.
That repurposing of debt issuance, while small in scale and its likely impact, was seen as a sign that authorities were increasingly concerned with consumer sentiment lingering near record-lows and that were willing to test measures that were not from their usual supply side stimulus toolkit.
On the crisis-hit property sector, the Politburo reiterated existing policy goals, saying China will continue to support the delivery of unfinished projects and turn unsold apartments into affordable housing.
Beijing will also promote jobs for key groups, including college graduates, and step up efforts to resolve issues such as food safety and social security, Xinhua said, citing the meeting.
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