Chinese leaders kept their economic policy stance largely unchanged, signaling it’s too early to pivot toward tighter monetary and fiscal measures or push contentious economic reforms as growth rebounds.
(Bloomberg) — Chinese leaders kept their economic policy stance largely unchanged, signaling it’s too early to pivot toward tighter monetary and fiscal measures or push contentious economic reforms as growth rebounds.
The recovery needs continued “forceful” fiscal and monetary support due to insufficient domestic demand, the Communist Party’s Politburo, the top decision-making body led by President Xi Jinping, said Friday, repeating language from its previous statements. It also vowed more support for private companies.
With economic growth rebounding in the first quarter, investors had feared policymakers would shift quickly from their supportive stance — as they’d done back in 2021, when growth began recovering from the initial Covid outbreak. That policy shift triggered fiscal tightening as well as regulatory crackdowns on sectors like technology and real estate.
The signals from the Politburo this time around were more cautious about the economy’s outlook. While growth has been better than expected, the economy is still in a recovery phase and faces new challenges, it said in a statement published by the official Xinhua News Agency.
“Policymakers acknowledged that demand remains weak and needs further support,” Michelle Lam, Greater China economist at Societe Generale SA. “They struck a pro-growth stance and reiterated support to the private sector and commitment to open up.”
Even so, with the language around monetary and fiscal policy remaining unchanged from the government’s work report in March, “the chance of major easing is limited,” Lam said.
Market Worries
Chinese stocks advanced on Friday, with the benchmark CSI 300 Index closing 1% higher, the biggest gain in about two weeks, led by telecom and energy sectors.
The economy expanded at its fastest pace in a year in the first quarter, fueled by stronger consumer spending on services like tourism and dining out, and government investment in infrastructure.
Several economists have upgraded their growth forecasts for the year to well above the government’s target of about 5%, although equity market investors have remained pessimistic on the outlook, given a relatively weak job market and low growth in private sector investment.
The meeting also stepped up rhetorical support for the private sector, vowing to “eliminate any legal, regulatory or hidden barriers preventing the fair competition and common development” between state and privately owned companies, to lift business confidence and “stimulate” private companies to invest.
“The biggest takeaway is that authorities again reinforced that stimulus and support for the demand side is the focus of policies in the short and medium term,” said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle Inc. “The priority for now remains supporting demand.”
The party’s language on real estate policy was little changed from its Central Economic Work Conference in December, vowing to support the “healthy” development of the market while also cracking-down on speculative housing purchases.
What Bloomberg Economics Says…
Politburo leaders sent a reassuring message to anyone worried that China might be tempted to back away from pro-growth policies after recent GDP figures that were surprisingly strong: They understand more work is needed to ensure a sustainable recovery.
We still think growth will pick up and beat the government’s conservative 5% target for 2023. To get there, the key will be repairing household and business confidence.
For the full report, click here
Eric Zhu and David Qu
The property market returned to growth in the first quarter after an 18-month long slump, with sales and prices rising from a year earlier, according to official statistics. However, independent surveys show real estate developers are still reluctant to start new projects, and sales growth slowed in April.
The Politburo singled out the electric vehicle sector for support, stating that officials should double down on China’s existing areas of industrial strength, at the same time as striving to achieve breakthroughs in sectors where the country is relatively weak.
China needs to become more self-reliant in science and technology, the Politburo said, highlighting the development of generalized artificial intelligence as an area of “importance,” which also carries risks. Support would be given to “leading” internet companies to innovate, it said.
The leaders also vowed to increase household incomes and support consumer spending, especially in areas like tourism, without giving any details. More focus should also be put on efforts to encourage foreign investment, and foreign trade and capital flows should be stabilized, it said.
The Politburo also flagged financial stability risks, calling for local government’s off-balance sheet debt to be “strictly” controlled, to deepen reforms and resolve risks at smaller banks and insurance companies.
–With assistance from Zhu Lin.
(Updates with additional details)
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