(Reuters) – China pledged to step up stimulus measures as the economy faces what it described as “new” difficulties and a “tortuous” recovery, following a meeting of the powerful politburo of the ruling Communist Party this week.
Below are the key takeaways from the official readout of the meeting on the direction China’s economic policy will take in the second half of 2023, which left many issues unaddressed.
MACRO POLICIES
The politburo urged a “proactive” fiscal stance, “prudent” monetary policy, a stable yuan, livelier capital markets, measures to defuse mounting financial risks, and improvements in business and consumer confidence.
On the fiscal policy front, it flagged unspecified reductions in taxes and fees and the issuance of special local government bonds, which usually fund infrastructure investment.
It reinforced expectations that any central bank liquidity injections or interest rate cuts will be limited in size.
PROPERTY
The politburo removed a key phrase from the readout of its meeting in April, that cited President Xi Jinping as saying “houses are for living, not for speculation,” sparking a rally in the shares of battered property firms.
While markets are expecting further easing of property market regulations to slow the giant sector’s downturn, the politburo flagged a “city-based” approach rather than nationwide changes. A call for “more affordable” housing suggests state-led investment into new projects, some analysts said.
LOCAL GOVERNMENT DEBT
The politburo said China will formulate “a basket of plans” to resolve risks stemming from local government debt, which economists estimate at more than $9 trillion.
This line was seen as more constructive than April meeting’s pledge to “adamantly curb any new hidden debts.”
Investors in China have been looking for more clarity on Beijing’s plans to address local government financing issues since the property market bubble burst in 2021 and many cities’ key source of revenue – land auctions – took a major hit.
Economists’ proposals range from debt-for-equity swaps, to a soft “extend-and-pretend” restructuring by refinancing loans at lower rates and with longer maturities, to Beijing bailouts.
An official strategy would go a long way easing market nerves.
HOUSEHOLD CONSUMPTION
The politburo reiterated it wants to turn it into a key driver of growth.
It flagged its intention to boost consumption of autos, electronic products and household goods and promote tourism, sports, entertainment and culture.
There was no mention of consumption vouchers or other direct measures that would immediately boost household income, leaving many economists disappointed that China’s plans to lift demand consist of subsidising manufacturers instead of consumers.
EMPLOYMENT
The politburo said efforts should be taken to “stabilize employment from a strategic perspective,” signalling Chinese leaders are concerned that a sluggish job market poses social instability risks.
Policymakers want the private sector to regain confidence and start investing, thus creating jobs for the more than 20% of youth seeking employment.
The politburo gave a nod to industries that have been bleeding jobs in recent years and are particularly attractive to university graduates, from artificial intelligence to the platform economy and advanced manufacturing.
(Reporting by the Beijing newsroom; Writing by Marius Zaharia; Editing by Lincoln Feast.)
