Clear-cut policy toolkit to steer Chinese economy ahead

The Chinese economy maintained stable expansion in the first half (H1) of 2024 and the country is ramping up efforts to sustain steady growth in the second half (H2) with a targeted policy mix.

Macroeconomic policies should be more effective. Counter-cyclical adjustments should be strengthened, multiple monetary policy tools should be fully utilized, and financial support for the real economy should be reinforced, according to Tuesday's tone-setting meeting of the Political Bureau of the Communist Party of China Central Committee on priorities for H2.

The meeting has sent a clear signal of increasing macro-control efforts, said Zeng Gang, deputy director of the National Institution for Finance & Development, adding that it will help stabilize market expectations, strengthen social confidence and ensure the goals for this year's economic and social development are accomplished.

Consumption a priority

Policymakers underlined the role of consumption in the meeting, as fully tapping China's supersized market and boosting domestic demand remain key to propping up growth.

The meeting said domestic demand should be expanded with a focus on boosting consumption, and economic policies should center on improving people's livelihoods and promoting consumption. It highlighted service consumption in the expansion and upgrading of consumption.

China's GDP grew 5 percent year on year in H1. Driven by policy incentives, consumption played a major role in promoting growth in H1, with final consumption contributing 60.5 percent of the economic expansion, or 3 percentage points to GDP growth.

However, Guo Liyan, a researcher with the Chinese Academy of Macroeconomic Research, said the foundation for the full recovery of the consumer market still needs to be consolidated, and people's spending power needs to be further improved.

Guo noted that the consumption measures highlighted in the meeting are very targeted at helping residents increase their income and further tap the potential of consumption.

Proactive fiscal policy

On the fiscal front, China has adopted a slew of proactive fiscal policies in H1, including the issuance of ultra-long special treasury bonds, to strengthen counter-cyclical adjustments and bolster the real economy.

For H2, the meeting emphasized the need to accelerate the issuance and usage of special bonds and promote large-scale equipment upgrades and trade-ins of bulk durable consumer goods.

Yao Dongmin, a professor at the Central University of Finance and Economics, believes that the meeting signaled a more proactive fiscal policy.

Yao said policy tools such as special bonds and ultra-long special treasury bonds are conducive to better solving the problem of insufficient effective demand at present.

The Ministry of Finance announced Wednesday that China would enhance fiscal support for sectors related to people's well-being and ensure the implementation of fiscal and tax policies in areas such as employment, education, elderly care and health care.

Prudent monetary policy

Chinese authorities stepped up monetary support in H1 to shore up the economy, leveraging interest rates, re-financing, and other monetary tools to ensure sufficient liquidity, reduce social financing costs and stabilize market expectations.

The meeting on Tuesday reiterated that China should fully use multiple monetary policy tools in H2, strengthen financial support for the real economy, and enhance the consistency of its macro policy orientation.

"While directing more financial resources to major strategies, key areas and weak links, interest rate and exchange rate tools will further play a key role in allocating resources and create a sound monetary and financial environment for sustained economic recovery," said Zeng Gang.

Fostering emerging industries

Tuesday's meeting called for efforts to foster new quality productive forces in light of local conditions and strong, effective support for gazelle companies and unicorn firms.

"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 with the Chinese Academy of Social Sciences.

Deng noted that cultivating and expanding emerging and future industries will help build new advantages in China's industrial development and improve the international competitiveness of domestic industry.

Deng explained that gazelle enterprises and unicorn firms 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 more efforts to create a fairer and more dynamic market environment and promote more small and medium-sized enterprises to grow into gazelle enterprises and unicorn firms.

Unwavering opening-up

Prioritized measures aimed at opening the Chinese market wider to the outside world were also stressed in the meeting as opening up is a defining feature of Chinese modernization.

The meeting urged work to expand China's institutional opening up. A new round of trial measures was rolled out to further open up the country's service industry. Trade in intermediate goods and green trade should also be expanded.

Chen Hongna, an associate researcher at the Development Research Center of the State Council, said it is necessary to accelerate the negotiation process of multilateral trade agreements, encourage the innovation and development of new business models such as cross-border e-commerce and market purchase trade, and accelerate the cultivation of new momentum and new advantages in foreign trade.

The Ministry of Commerce has recently pledged steps to increase new growth drivers for foreign trade, including trade in intermediate goods and green 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 appropriately shorten the negative list for foreign investment and promote wider opening with regard to telecommunications, the internet, education, culture, medical services and other sectors in a well-conceived way, according to the ministry.