A clear policy toolkit to steer China’s economy

BEIJING – China’s economy maintained stable expansion in the first half of 2024, and the country is stepping up efforts to maintain stable growth in the second half of the year with targeted economic policies.

Macroeconomic policies should be more effective. Countercyclical adjustments should be strengthened, multiple monetary policy tools should be fully used and financial support for the real economy should be strengthened, according to Tuesday’s tone-setting meeting of the Politburo of the Central Committee of the Communist Party of China on H2 priorities.

Zeng Gang, deputy director of the National Institution of Finance and Development, said the meeting is a clear signal of intensified efforts for macroeconomic control, adding that it will help stabilize market expectations, strengthen public confidence and ensure the achievement of this year’s economic and social development goals.

Consumption is a priority

Policymakers stressed the role of consumption at the meeting, as fully tapping China’s huge market and boosting domestic demand remain key to sustaining economic growth.

The meeting stated that domestic demand should be expanded, with special attention to increasing consumption, and economic policies should focus on improving people’s living conditions and promoting consumption. It emphasized the consumption of services in the expansion and modernization of consumption.

China’s GDP grew 5 percent year-on-year in the first half of the year. Driven by policy incentives, consumption played a major role in promoting growth in the first half of the year, with final consumption contributing 60.5 percent of the economic expansion, or 3 percentage points of GDP growth.

However, Guo Liyan, a researcher at the China Academy of Macroeconomic Research, said the foundation for a full recovery of the consumer market still needs to be consolidated and the purchasing power of the public needs to be further improved.

Guo noted that the measures to boost consumption discussed at the meeting are strictly aimed at helping residents increase their income and make better use of their consumption potential.

Proactive fiscal policy

On public finances, China adopted a series of proactive fiscal policy measures in the first half of the year, including the issuance of special ultra-long-term treasury bonds, to strengthen countercyclical adjustment and support the real economy.

The second-half meeting emphasized the need to accelerate the issuance and utilization of special bonds and promote large-scale equipment upgrades and wholesale replacement of consumer durables.

Yao Dongmin, a professor at the Central University of Finance and Economics, said the meeting was a signal of more proactive fiscal policy.

Yao said policy tools such as special bonds and ultra-long special Treasury bonds would be conducive to better addressing the current problem of insufficient effective demand.

China intends to increase fiscal support for sectors related to citizens’ well-being and ensure the implementation of fiscal and tax policies in areas such as employment, education, care for the elderly and health care, the Ministry of Finance said on Wednesday.

Sound monetary policy

Chinese authorities increased monetary support in the first half of the year to bolster the economy, using interest rates, refinancing and other monetary tools to ensure sufficient liquidity, reduce social financing costs and stabilize market expectations.

Tuesday’s meeting reiterated that China should make full use of multiple monetary policy tools in the second half of the year, strengthen financial support for the real economy and improve the coherence of its macroeconomic policy orientation.

“By directing more financial resources to core strategies, key areas and weak links, interest rates and exchange rate tools will play a key role in allocating resources and creating a sound monetary and financial environment for a sustainable economic recovery,” Zeng Gang said.

Supporting emerging industries

Tuesday’s meeting called for action to support new, high-quality production forces in light of local conditions and for strong, effective support for gazelle and unicorn companies.

“Currently, the comparative advantage of China’s manufacturing industry has changed from a cost-competitive advantage to an innovation advantage,” said Deng Zhou, a researcher at the Chinese Academy of Social Sciences.

Deng noted that developing and developing emerging and future industries will help build new advantages in China’s industrial development and improve the international competitiveness of the country’s industry.

Deng explained that “gazelle” and “unicorn” enterprises have become important driving forces for the transformation and upgrading of China’s manufacturing industry and the development of new high-quality productive forces.

Deng suggested making greater efforts to create a more fair and dynamic market environment and promoting the development of more small and medium-sized enterprises into gazelle or unicorn enterprises.

Unwavering Opening

The meeting also highlighted priority actions aimed at opening up the Chinese market to the outside world, as opening up is a hallmark of China’s modernization.

The meeting called for work to expand China’s institutional opening. A new round of trial measures was introduced to further open up the country’s service sector. Intermediate goods trade and green trade should also be expanded.

Chen Hongna, an assistant research professor at the Development Research Center of the State Council, said it is necessary to speed up the negotiation process of multilateral trade agreements, encourage the innovation and development of new business models such as cross-border e-commerce and market-based purchasing trade, and accelerate the formation of new dynamics and new advantages in foreign trade.

The Ministry of Commerce recently pledged to take steps to strengthen new growth drivers in foreign trade, including trade in intermediate goods and ecological trade, fully apply the negative list for cross-border trade in services, and promote the development of integrated pilot zones for cross-border e-commerce.

In the sphere of foreign investment, China will suitably shorten the negative list for foreign investment and thoughtfully promote wider opening-up in telecommunications, the Internet, education, culture, medical services and other sectors, the ministry said.