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Economy set to get major policy boost

Chinese leaders are expected to intensify policy support in the second half of the year to bolster the country’s economic growth, which has shown signs of decelerating, analysts said.

The leaders will focus on ensuring the policies are effective and forward-looking to address possible risks and uncertainties, the analysts said.

Their comments came after top policymakers acknowledged at a key meeting in Beijing on Friday that the country’s economic recovery is still unstable and unbalanced, as it faces an increasingly complex and challenging external environment.

While China’s economic recovery remains on a steady path, rising uncertainties have emerged amid the global surge of the Delta variant of coronavirus and recurrence of local COVID-19 cases. The recent heavy rainfall and floods in some Chinese provinces have disrupted business activities and the soaring raw material prices have eaten into corporate profits.

The top leadership decided that a proactive fiscal policy should have a greater effect on boosting the economy, while a prudent monetary policy should maintain ample liquidity to support the recovery of smaller businesses as well as stressed industries, according to a statement released after the meeting of the Political Bureau of the Communist Party of China Central Committee on Friday. Xi Jinping, general secretary of the CPC Central Committee, presided over the meeting.

The meeting emphasized the need to maintain policy consistency, stability and sustainability and to improve cross-cycle policy adjustment. Meanwhile, it also set out policy directions for key industries including electric vehicles, rural e-commerce and logistics delivery systems to substantially expand domestic demand and boost investment.

Analysts said the meeting’s statement showed that the top leadership is cautious about the economic recovery and is ready to fine-tune its policies and deploy more supportive measures to stabilize growth.

The emphasis on policy effectiveness and sustainability also underscored the leadership’s intention to better manage policy intensity and pace to avoid negative outcomes for the economy, they added.

Zhang Liqing, chief economist of PwC China and director of the Central University of Finance and Economics’ Center for International Finance Studies, said that China’s fiscal policy will be proactive over the remainder of the year to ensure timely implementation of the debt issuance plan, while more targeted monetary supports will be provided to smaller businesses and stressed industries.

“The Chinese central bank may further cut the reserve requirement ratio in the second half of the year if liquidity conditions become tight due to reasons including any potential capital outflows,” he said.

However, Zhang said that the meeting’s emphasis on cross-cycle adjustments indicated that the government will refrain from using ultra-loose macro policies in the second half of the year, even if the economy does not fully normalize, so as to save policy room for future uncertainties.

Lan Zongmin, a researcher at the Development Research Center of the State Council, said that policymakers will pay more attention to policy efficiency, independence and sustainability as the country’s economic recovery needs to be further consolidated amid softening growth momentum.

The official purchasing managers index, a key indicator of the manufacturing sector’s health, has declined for four months in a row. The index came in at 50.4 in July, compared with 50.9 in June, indicating a slower expansion of the sector, the National Bureau of Statistics said on Saturday.

Lan said policymakers will intensify targeted support in key economic areas and industries as the top-level meeting had laid out specific tasks in areas including domestic and external demand, carbon reduction and development of the technology, real estate and capital market sectors.

China will also place greater emphasis on the mid to long-term effect of its macro policies and work to ensure greater policy independence, Lan added.

The possible end of monetary easing by the US Federal Reserve and the recent stock market volatility sparked by China’s sweeping regulatory moves targeting its technology giants and companies in the education sector, have generated concern about potential capital outflow that could destabilize China’s economic recovery.

However, some international investors remain bullish about the long-term prospects of the Chinese economy.

“Despite policy headwinds in some sectors, China is still on track for decent GDP growth over the next decade while its middle-income population should continue to grow and see its purchasing power increase as income gaps are narrowed,” said Victoria Mio, director for Asian equities at Fidelity International.
Source: China Daily

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