MNI INTERVIEW: China Stimulus To Boost Economy In H2

Chinese authorities will unveil fiscal and monetary support measures as necessary in the second half of the year to ensure the target for a 5% annual rise in GDP is met, a senior policy advisor to the National Development and Reform Commission told MNI in an interview.

“China’s policymakers have an objective understanding and are fully prepared to deal with the complex challenges of the economic recovery … supportive policy will remain strong and be closely tailored to the difficulties we face,” said Wu Sa, deputy-director of the Economics Institute at the Academy of Macroeconomic Research, a think tank with a focus on development issues under the NDRC.

The economy is likely to expand by over 5% in the first half, Wu said, speaking as expectations grow for new stimulus following a call by Premier Li Qiang during the State Council Executive Meeting last Friday for measures to boost demand. Growth has slowed since April following an unexpectedly strong rebound in Q1 when GDP expanded 4.5% as Covid restrictions were relaxed. (See MNI: China Faces H2 Headwinds As Consumption Weakens)

Wu said authorities should closely monitor consumption and private investment, noting that durables consumption, particularly of goods linked to the property market, has been weak compared to the rapid recovery of “contact-based” spending.

Wu said measures taken to stabilise the property sector have started to work, but restrictions aimed at curbing the pure pursuit of financial gain are being maintained. Chinese regulators imposed strict controls on property market excess following President Xi Jinping’s 2016 declaration that “houses are for living in, not for speculation”. (See MNI: China Seen Easing Restrictions As Developers Delist)

BOOST FOR PRIVATE INVESTMENT

Private investment, meanwhile, has softened for 15 consecutive months, and recorded its first decrease on record in May, but Wu predicted the sector would rebound in H2 as authorities open more fields to private investors, facilitate investment and enhance targeted supports.

“Private investment needs to be boosted,” Wu said. “Cheap funds are already available as interest rates on bank loans are low, so the priority now is boosting confidence via providing opportunities for future profits.”

A recovery in consumption, large infrastructure projects and the expansion of export destinations will support the economy in H2, Wu predicted.

“Consumption will continue to recover in H2 as online shopping remains robust and the younger generation consumes more,” he said, adding that rising consumption will in turn bolster production and generate investment opportunities, though this will take time.

Demand for commodities, including steel and cement, will also rise, as infrastructure projects already approved in the first half come online, he said.

Exports should also perform better than expected, as new products, including electric vehicles, photovoltaic cells and batteries, outpace older categories such as clothing, household appliances and furniture to become major trade drivers, Wu said.

“This is a positive sign for the export outlook in a global green, intelligent and high-end trend,” he said. Meanwhile, China’s efforts in recent years to promote trade cooperation with developing countries, such as with the Regional Comprehensive Economic Partnership, Association of Southeast Asian Nations and via the Belt and Road Initiative over recent years should also bear fruit, he said.