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China’s leadership announced priorities for economic policy in the second half of the year, pledging to tackle ongoing tensions over trade “effectively” while offering incremental additions to stimulus policies.
Policy makers vowed to maintain their pro-active fiscal policy and keep prudent monetary policy not too tight or too loose. Meanwhile, officials should “effectively deal with trade frictions,” according to a statement carried by state media Tuesday.
The meeting refrained from committing to new major easing plans while pledging measures focused on reforming inefficient parts of the economy, such as speeding up the disposal of “zombie” companies, and building up undeveloped sectors such as rural consumption.
This “isn’t major escalation in the current policy setting, and more effective implementation of existing policies is being stressed,” said Ding Shuang, Greater China & North Asia chief economist at Standard Chartered Bank Ltd in Hong Kong. While policy makers acknowledged rising headwinds ahead, their response has focused on pushing forward reforms to tap domestic demand, not to increase stimulus directly, he said.
The 25-member politburo, the Communist Party’s top ruling body, met on Tuesday to review economic performance in the first six months and discuss plans for the second half. Authorities have been under pressure to support domestic demand amid the downdraft from the slowing global economy and trade war, while keeping a lid on debt.
The meeting came ahead of a summer conclave of party luminaries including President Xi Jinping and his top aides, as well as retired leaders in the seaside resort town of Beidaihe. Beidaihe’s mid-August conclusion has in the past heralded policy moves, with leaders this year likely to discuss the slowing economy, the simmering U.S. trade war and plans to mark seven decades of party rule over the People’s Republic of China.
Trade negotiators from China and the U.S. are resuming talks in Shanghai this week, the first high-level face-to-face encounter since negotiations fell apart in May. The outlook for any a resolution remains uncertain.
Read more: China Tries to Woo U.S. Trade Team With Shanghai Jazz-Age Glamor
Tuesday’s statement said the Chinese economy “faces new risks and challenges with rising downward pressure.” The statement also dropped previous language on cutting the leverage ratio, and asked authorities to manage the pace of addressing financial sector risks.
Policy makers pledged to foster domestic demand, including in rural areas to expand consumption, and to carry out projects to renovate old neighborhoods, build infrastructure projects like parking lots and cold-chain logistics facilities to stabilize investment.
No Property Boost
Officials also vowed to funnel more long-term loans to the private sector and manufacturing companies, while refraining from “using property as a tool to stimulate the economy in the short-run,” reiterating a stance that housing is for “habitation, not for speculation.”“Property investment is set to decline given the policy stance, and fiscal policy could rely on tax cuts on exports, consumption and logistics” to exert greater support to the economy, said Li He, an analyst at Bank of China’s research institute in Beijing. The meeting also indicates a cut to the central bank’s benchmark rate is unlikely, while a reduction on required reserve ratio is possible, he said.
Politburo meetings don’t always announce concrete policies, but instead signal shifts in policy stance. The intensity of stimulus weakened in the second quarter after the authorities saw “better-than-expected” economic growth in the first three months and stressed debt containment was still a focus at a meeting in April. That momentum has since slowed.
One major policy move still awaited is a revamp of the People’s Bank of China interest rates. That step could in turn help the stimulus push by lowering the cost of borrowing and transmitting official policy to the real economy more effectively. That reform wasn’t mentioned in the statement.
China’s efforts to shore up sagging economic growth are leading to a resurgence in indebtedness, underlining the challenge President Xi Jinping’s government faces in curbing financial risk.
The nation’s total stock of corporate, household and government debt now exceeds 303% of gross domestic product and makes up about 15% of all global debt, according to a report published by the Institute of International Finance. That’s up from just under 297% in the first quarter of 2018.
(Updates to add economist comments, more details from the statement.)
--With assistance from Dandan Li.
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