Beijing's economic planning agency outlined details of measures aimed at boosting the economy on Tuesday but refrained from major spending initiatives. According to the World Bank, however, China's growth is set to slow next year, despite the temporary stimulus boost
On Oct. 8, the State Council Information Office held a press conference, inviting Zheng Jie, director of the National Development and Reform Commission, and deputy directors Liu Sushe, Zhao Chenxin, Li Chunlin and Zheng Bei to present “the systematic implementation of a package of incremental policies and solidly promote the structural excellence of the economy and the trend of sustained development.”
The Political Bureau of the Communist Party of China Central Committee held a meeting Sept. 26 in which it said the country should effectively implement existing pro-growth policies, step up efforts to implement more incremental policies and make policy measures more targeted and effective.
This is the first press conference of the State Council Information Office on the systematic implementation of an incremental policy package after the Politburo Meeting on September 26.
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The presence of "one chairman and four deputies" of the National Development and Reform Commission is also an event that has rarely occurred in recent years.
Zheng admitted that the Chinese economy faces some difficulties and problems. He said the external environment is becoming more complex, with the latest IMF forecast predicting global growth to reach 3.2 percent this year, which is lower than last year's growth rate.
Zheng Shanjie, head of the National Development and Reform Commission
Major economies are witnessing weakening growth momentum, rising debt burdens, fluctuations in international financial markets, and increasing protectionism and global trade instability. All this will have a negative impact on China, the minister said.
He said downward economic pressure is increasing slightly, with some economic indices such as industrial production, investment and consumption showing fluctuations, while some industries experience “involution” competition and some enterprises fail to adapt to the changes brought about by upgrading and transformation.
In the press conference, Zheng Shanjie also said that the Party Central Committee and the State Council have made scientific decisions and taken decisive measures, as well as effectively implementing existing policies, focusing on increasing countercyclical adjustments to macroeconomic policies and domestic expansion in five aspects, including effective demand, increasing support for enterprises, promoting the real estate market, and reviving the capital market.
The piecemeal nature of the plans announced Tuesday, however, seemed to disappoint investors who had hoped for bolder moves, and the Shanghai benchmark gave up an initial 10 percent gain when markets reopened after a week's vacation to trade up only 3 percent.
Compared with the expected market rumors about the issuance of special bonds for fiscal stimulus, this press conference did not directly mention it.
Specifically, the head of the National Development and Reform Commission said the government will advance (only) 100 billion yuan ($14.1 billion) in spending from the government budget for 2025 in addition to another 100 billion yuan for construction projects.
Compared to the 800 billion yuan of the special stock market fund that was discussed at the central bank meeting on September 24 or the trillions of special bond investments imagined by the market, today's press conference therefore only mentioned 200 billion yuan of investments, which seems to disappoint the market and several analysts who in recent days had speculated on a much more incisive government intervention through the use of public debt.
The scale of overall spending was well below the multi-trillion yuan levels that analysts said could be expected.
Does China No Longer Need Four Trillion?
In the Politburo meeting document of September 24, it was mentioned that "effectively implement existing policies, step up efforts to launch incremental policies, further improve the relevance and effectiveness of policy measures, and strive to complete the annual economic and social development goals and tasks."
Judging from the economic data from July to August, the annual GDP growth rate in the third quarter may be lower than the 4.7% in the second quarter, which will affect the realization of the annual economic growth target of "about 5%."
In recent days, however, financial and market analysts have expressed their views on how to achieve the economic goals, highlighting three main directions.
According to an initial view, China should issue 2 trillion special bonds this year to supplement bank capital and invest in new productive forces to make up for the GDP growth gap.
The second view was put forward by Bai Chongen, dean of the School of Economics and Management at Tsinghua University. He believes that to boost the economy, the government should finance local governments to replace local debts and release economic vitality for this part of the funds reaches up to 3.5 trillion.
The most radical view was represented by Liu Shijin, former vice director of the Development Research Center of the State Council. He suggests launching a package of as much as 10 trillion in the next two years, focusing on fiscal policy and integrating with the Fund. On the demand side, structural reforms should be closely coordinated to achieve comprehensive effects of expanding consumption, stabilizing growth and preventing risks.
However, the expectations for stimulus policies have been completely disregarded as the main focus has been on stabilizing the economy with the physical workload.
However, the Standing Committee of the National People's Congress is expected to open "a window to observe this round of incremental fiscal policies" at the end of this month or early November, according to Observer.
You also said that in recent years, insufficient aggregate demand has been one of the major problems faced by the Chinese economy. How to boost domestic demand, increase investment and promote consumption are two important starting points. Which part should be given priority?
However, at this press conference, Zheng Shajie, director of the National Development and Reform Commission, made the final decision.
He said: “In response to problems such as insufficient domestic effective demand, the focus of policies to expand domestic demand will be more on benefiting people's livelihood and promoting consumption, and will actively play the driving role of investment.” “In terms of consumption, the focus is on promoting consumption, and in addition to promoting people's livelihood, we will promote the income growth of low- and middle-income groups and implement actions to stimulate consumption.”
Specific policies involve three aspects:
first, increasing support for specific groups. For example, Beijing will increase the standard of student financial aid, expanding policy coverage, increasing the amount of domestic student loans for undergraduates and postgraduate students, and promoting the reduction of loan interest rates;
second, continuous expansion of commodity consumption.
third, expanding pension spending, child care, etc.
It can be said that the greatest strength of this conference is here: compared with market participants who generally discuss the direct issuance of money to issue vouchers, the decision makers decided to pay more attention to “accuracy and effectiveness,” “taking into account that the consumption elasticity of the low-income group is higher than that of the high-income group, and choosing to improve the support of low- and middle-income groups will be more effective in boosting marginal consumption by spending the same amount of money, but instead, it can be done to promote the promotion of the tax and benefit people's livelihood,” writes Observer.
Calm is needed
Zheng Shanjie said at a press conference: "We believe that to accurately grasp China's economic reality, we must be comprehensive, objective and calm, look at the overall macro situation and development trends, and look at both the present and the future."
In other words, macroeconomic policy decisions must be based on the economic situation in the third quarter. At present, it will take more than ten days to fully reveal the overall economic performance of the third quarter. At that time, Beijing will be able to better judge the focus, intensity and pace of implementation of macroeconomic control policies.
Zheng Shanjie said at a press conference that the implementation of an incremental policy package is a comprehensive and systematic work, and it is necessary to improve its relevance and accuracy, as well as increase its effectiveness and sustainability.
China’s growth is set to slow next year despite temporary boost from stimulus, World Bank warns
China's economic growth rate is expected to decline further in 2025, despite a temporary boost from recent stimulus measures, according to the World Bank.
The international lender estimated that China's growth rate will drop to 4.3 percent next year, down from an expected 4.8 percent in 2024, in an economic update Tuesday.
Hui Shan, chief China economist at Goldman Sachs, told CNBC’s “Squawk Box Asia” on Tuesday that China’s growth rate next year would highly depend on the size of any additional stimulus package and the outcome of the November U.S. presidential election.
Goldman is still forecasting that China’s 2025 real gross domestic product growth will be at 4.3%.
The World Bank estimates that the rest of the East Asia and Pacific region will grow at 4.7 percent this year and rise to 4.9 percent next year amid an expected recovery in exports and better financial conditions.
However, the region will need to find more domestic engines of growth as China slows down.
“For three decades, China's growth has extended advantageously to its neighbors, but the extent of that momentum is now diminishing,” the World Bank said in its report Tuesday.
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