MNI: Beijing Shifts Focus To Consumption To Boost H2 GDP

Beijing will likely tilt its support towards consumption in H2 and could issue consumer coupons or other measures that offer subsidies to lower-income households to ensure the economy meets its “around 5%” growth target, advisors and economists told MNI.

The politburo’s shift to consumer demand at July’s meeting reflects Beijing's belief that more is needed over traditional support aimed at infrastructure and manufacturing investment, which it views as stable, if the economy is to meet the GDP target in H2, said Lian Ping, director at the China Chief Economist Forum.

“The government will prefer coupon discounts versus direct cash handouts due to China’s high saving propensity,” Lian said, noting the issuance of consumer coupons in H2 was possible.

However, officials’ attempts to revive spending will suffer should real estate continue to decline, Lian noted. “More housing support is needed, including lifting restrictions in some tier-one cities,” he said.

Property investment declines had dragged down retail sales and fixed-asset investment growth by 4.7 and 4.0 percentage points to 3.7% and 3.9% y/y in the first half, lowering nominal GDP by 1.5 pp, he added. (See MNI EM: Further Easing To Boost Property After China’s 3rd Plenum)

TARGETED STIMULUS

China’s disappointing 4.7% y/y Q2 growth warranted more proactive fiscal policy in H2, Liu Qiao, dean at the Guanghua School of Management at Peking University, told MNI. He called for bolder moves to stimulate demand.

Beijing’s current mindset favoured a targeted approach to boost demand using central government transfer payments and subsidies for low-income groups, more than wide-scale direct cash payments, Liu noted.

The politburo meeting highlighted improving consumption for low- and middle-income groups, which accounted for about 900 million people.

Targeting these lower groups, including 280 million with less than CNY700 disposable income a month, can ensure support translates to spending increases, Liu said.

Allowing special treasury bond proceeds to stimulate consumer demand, rather than just infrastructure, would also help the economy reach Beijing’s GDP target, Liu argued, noting a lack of suitable infrastructure projects and a funding shortages at local governments had delayed issuance.

Policymakers last month unexpectedly announced local authorities could use CNY150 billion out of the CNY1 trillion special treasury bond programme towards the consumer trade-in scheme, fueling further expectations for more household stimulus.

However, Liu said additional fiscal measures would not require raising the budget deficit ratio, noting funds remained available.

“China still has about CNY2 trillion of deficit funds, CNY2.4 trillion of local government special bonds and CNY750 billion of special treasury bonds, for use this year,” noted Wen Bin, chief economist at China Minsheng Bank.

Wen expected the government to unveil structural tax cuts to support innovation, entrepreneurship and employment, alongside a new quota of refinancing bonds, and increased efforts to revitalise state-owned assets and profits, as the politburo pledged to reserve and launch “additional policies” in good time.