China Vows to Focus on Consumption With Growth Target at Risk
China’s ruling Communist Party pledged to make boosting consumer spending a greater policy focus, as weak domestic demand threatens the nation’s annual growth target despite an export boom.
“The focus of economic policies needs to shift toward benefiting people’s livelihood and promoting spending,” senior leaders agreed at a meeting of the 24-member decision-making body led by President Xi Jinping, the official Xinhua News Agency reported. Officials also vowed to roll out a batch of new measures to support the economy at an appropriate time, without elaborating.
China’s top leader telegraphed his blueprint for cutting-edge manufacturing to propel the world’s No. 2 economy at a twice-a-decade huddle earlier this month on long-term reforms. Officials at the Tuesday meeting seemingly downplayed that goal, only listing it as a work priority after boosting consumption. That signaled a shift in Beijing’s short-term agenda as a lingering property crisis and weak job market stifle consumer sentiment.
Those broad pledges were met with skepticism in the market, with economists calling for more specific policies, such as an expansion of fiscal stimulus that has so-far been restrained this year.
Investors continued piling into 10-year government bonds, pushing yields to a fresh low at around 2.14%. The benchmark CSI 300 Index for onshore stocks closed 0.6% lower on Tuesday, paring from a loss of as much as 1.1% following the readout, likely helped by state buying. Turnover in a basket of eight exchange-traded funds known to be picked up by the sovereign wealth fund totaled around 16 billion, more than twice Monday’s amount.
While the Politburo’s commitment to boost the weaker side of China’s twin-track economy was a “good shift” it lacked detail, said Michelle Lam, Greater China economist at Societe Generale SA.
“Policymakers could still be focusing on better supply of services to drive consumer demand,” she added. “It doesn’t seem like they are thinking about something unconventional, which is needed to revive weak investor confidence.”
China’s economic growth unexpectedly slowed to the worst pace in five quarters in data released earlier this month, as faltering consumer spending undermined an export boom. That triggered calls for policymakers to unleash government support to help Beijing hit its annual growth goal of about 5%.
The central bank has since stepped in with a string of surprise interest-rate cuts, while the Finance Ministry has allocated funds raised by special sovereign bonds to finance a cash-for-clunkers program to stimulate consumption.
Leaders gave broad pledges to increase household income and make lower-income groups more willing and able to spend, and highlighted areas including services, tourism and elderly care in the report. Chinese ministries will likely fill in the details in the coming months, although a drip feed of piecemeal measures have so far struggled to significantly shift sentiment.
Li Minghong, a fund manager at Beijing Yikun Asset Management LP., said the market has “become less sensitive to these policies which everyone agrees is positive in the long term but cannot do anything to address the near term pains.”
Policymakers made a more sobering assessment of the economy than usual, acknowledging it was suffering from insufficient domestic demand and changes in the external environment — a veiled reference to rising protectionist measures overseas. China’s exports have surged since the pandemic and are increasingly driven by higher-value added products such as electric vehicles, widening Beijing’s imbalances with trade partners.
The US and Europe have criticized China for exporting its industrial overcapacity to the rest of the world, claims Beijing has rebutted. The Politburo meeting vowed to rely on market competition to let inefficient companies fail, as raging domestic price wars exacerbate China’s longest deflationary streak since 1999.
The meeting “shows a more realistic short-term assessment of the economy, paving the way for more supportive measures,” said Tommy Xie, head of Asia macro research at Oversea-Chinese Banking Corp. “China’s fiscal policy can do more to support consumption.”
Top officials called for preventing “involuted” competition within industries, referring to an Internet buzzword describing a state of pointless overwork and burn out due to cutthroat competition. That rare nod to popular culture in a cryptically-worded party document comes after China’s average weekly working hours for company employees rose to a record 49 hours earlier this year.
Officials also sought to reassure on long-term prospects, calling the problems faced by China “temporary pains” as the economy transitions from old to new drivers. Xi is trying to wean China off decades of debt-driven boom-and-bust cycles, as he boosts tech self-sufficiency against the US amid growing trade tensions between the world’s largest economies.
On property, the July meeting — one of three Politburo huddles per year to typically focus on the economy — vowed to support local governments buying and turning unsold homes into subsidized public housing. Officials also pledged to ensure delayed units were completed.
The meeting more generally called for economic policies to make “continuous” efforts to be “even more supportive,” with officials urged to speed up the issuance and use of local government special bonds, a key source of funding for infrastructure projects.
Government spending has lagged expectations in 2024, with fiscal expenditure in the first half contracting almost 3% from a year ago, likely weighing on economic activity.
“The question on my mind is whether the fiscal policy stance will change significantly in the second half of the year to be much more supportive,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management. “It is not clear at this stage if such a shift of fiscal policy will happen.”
