(Bloomberg) China’s Communist Party has pledged to make boosting consumer spending a policy focus as weak domestic demand threatens to push the country past its annual growth target despite robust exports.
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“The focus of economic policy needs to be shifted to improving people’s lives and promoting consumption,” senior leaders agreed at a meeting of the 24-member policy-making body headed by President Xi Jinping, the state-run Xinhua news agency reported. Officials also vowed to introduce a series of new measures to support the economy at the appropriate time, but gave no details.
China’s top leader earlier this month at his second meeting in a decade on long-term reforms laid out a blueprint for promoting cutting-edge manufacturing to drive the world’s second-largest economy.Officials at Tuesday’s meeting appeared to downplay the goal, listing it only as a jobs priority after expanding consumption, signaling a shift in near-term policy direction in Beijing as a lingering real estate crisis and a weak job market weigh on consumer confidence.
Those broad promises have drawn skepticism in markets and led economists to call for more concrete measures, including an expansion of fiscal stimulus that has been restrained so far this year.
Investors continued to buy 10-year government bonds, pushing their yields to a record low of around 2.14%.The domestic stock benchmark CSI 300 index closed down 0.6% on Tuesday, recovering from a 1.1% drop after the announcement, likely helped by government purchases.Trading volume in eight exchange-traded funds reportedly purchased by sovereign wealth funds rose to about $16 billion, more than double Monday’s figure.
Michelle Lam, Greater China economist at Societe Generale SA, said the Politburo’s push to shore up weaker parts of China’s two-track economy was a “good change of direction” but lacked details.
“Policymakers may still be focused on improving service delivery to spur consumer demand,” she added. “They don’t seem to be considering doing anything out of the box that would be needed to restore weakened investor confidence.”
Data released earlier this month showed China’s economic growth unexpectedly slowed to its worst pace in five quarters, with a slump in consumer spending weakening an export boom, fuelling calls for policymakers to deploy all-out government support to help the country meet its target of around 5% annual growth.
The central bank then stepped in with a series of unexpected interest rate cuts, and the Treasury used the money raised through special bonds to fund its Cash for Clunkers program to stimulate consumption.
Leaders broadly pledged to boost household incomes and improve the willingness and ability of lower-income earners to spend, highlighting sectors such as services, tourism and elderly care in the report. Chinese ministries are expected to lay out more details in the coming months, but so far a series of piecemeal measures have struggled to significantly change public opinion.
“The market has become less sensitive to these policies. Everyone agrees they are positive in the long term, but they can’t deal with the short-term pain,” said Li Minghong, a fund manager at Beijing Yikun Asset Management.
Policymakers were more sober in their assessment of the economy than usual, acknowledging it was struggling with a lack of domestic demand and a changing external environment, a sign of growing protectionist measures abroad. China’s exports have surged since the pandemic, driven by high-value-added products such as electric vehicles, widening the imbalance between Beijing and its trading partners.
The United States and Europe have criticized China for exporting industrial excess capacity to the world, but the Chinese government has denied this. At a Politburo meeting, China vowed to rely on market competition to force inefficient companies out of business as price wars intensify at home and the country faces its longest period of deflation since 1999.
Tommy Shi, head of Asia macro research at Oversea-Chinese Banking Corporation, said the meeting “provides a more realistic short-term assessment of the economy and paves the way for further support measures,” adding that “China’s fiscal policy can further support consumption.”
Officials called for preventing “complicated” competition in industries — a popular internet slang term for the pointless overwork and burnout that comes from cutthroat competition. The rare pop-culture reference in a cryptically worded party document comes after the average workweek for Chinese office workers rose to a record 49 hours earlier this year.
Officials also sought reassurance about the longer-term outlook, calling the problems China faces “temporary pain” as the economy transitions from old drivers to new ones. Xi is trying to make China more technologically self-sufficient vis-à-vis the United States and pull the country out of a decades-long debt-driven boom-and-bust cycle amid rising trade tensions between the world’s largest economies.
On real estate issues, the July meeting — one of three Politburo gatherings a year that typically focuses on the economy — pledged to help local governments buy unsold homes and turn them into subsidized public housing. Officials also promised to ensure delayed housing projects are completed.
The meeting called for “continued” efforts to make economic policy “even more supportive” more generally, and urged officials to speed up the issuance and use of local government special bonds, a major source of funding for infrastructure projects.
Government spending has been below expectations for 2024, with fiscal spending in the first half of the year down about 3% from a year earlier, likely weighing on economic activity.
“My concern is whether there will be a significant change in the posture of fiscal policy later this year to a more supportive direction,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management Co. “At this stage, it’s not clear whether such a shift in fiscal policy will occur.”
–With assistance from April Ma and Iris Ouyang.
(Details will be updated as they become available.)
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