China has made a number of pledges recently to revive the economy’s recovery and improve the business environment as concerns about the growth outlook continue to mount.
A flurry of statements from the government and Communist Party since July have largely focused on encouraging more spending on things like consumer goods and cars, coaxing private companies to expand investment, and making it easier for businesses to access funding.
But even with two interest rate cuts this year, Beijing isn’t unleashing the kind of monetary and fiscal stimulus implemented during past downturns. President Xi Jinping’s government is reluctant to give the kind of cash handouts to consumers that fueled post-pandemic recoveries in the US and elsewhere. And debt-laden local governments in China don’t have the fiscal space for a major boost to spending.
Here’s a snapshot of the recent measures announced:
Consumer goods
Thirteen government departments outlined a plan on July 18 to boost household spending on everything from electric appliances to furniture. Local authorities are encouraged to help residents refurbish their homes, and people should get better access to credit to buy household products, according to the measures announced.
On July 28, three government agencies outlined a plan to increase manufacturing of small consumer goods — or the so-called light industry sector, which makes up more than a quarter of China’s exports. Steps will be taken to increase sales of green and smart home goods in rural areas, and expand the use of battery products in electric cars, power stage and telecommunications. An exchange dedicated to helping small firms get access to funds will also be expanded.
The National Development and Reform Commission, China’s top economic planning agency, released a comprehensive document on July 31 repeating many of the pledges so far. The document focuses on removing government restrictions on consumption, such as car purchase limits, improving infrastructure and holding promotional events like food festivals.
Property
The Communist Party’s Politburo, its top decision-making body, signaled an easing of property policies at its July meeting. The official readout omitted President Xi Jinping’s signature slogan that “houses are for living, not for speculation,” fueling speculation that some of the tough restrictions imposed in recent years to rein in the property market would be reversed.
On August 25, authorities proposed that local governments could scrap a rule that disqualifies people who’ve ever had a mortgage — even if fully repaid — from being considered a first-time homebuyer in major cities. The government left it up to local officials on whether to adopt the policy.
“The key is whether core districts in top-tier cities will adopt this policy,” said Zhaopeng Xing, senior China strategist at Australia & New Zealand Banking Group Ltd. “If they do, that will be helpful to revitalize the housing market. But if not, the policy will be less impactful.”
At a State Council meeting chaired by Premier Li Qiang on July 31, China’s cabinet called on cities to roll out measures that are “conducive to the healthy development” of their property markets according to their own needs. The officials also urged efforts to be beefed up on the research and construction of a new industry development model.
The government is also planning to boost the renovation of so-called urban villages. It will seek more private capital in the projects to expand domestic demand and push forward development of cities, the State Council said on July 21.
Financial regulators on July 10 extended loan relief for developers to ensure the delivery of homes under construction. The PBOC has also called on banks to lower the rates on existing mortgages.
Cars
The NDRC released a 10-step plan on July 21 to increase car purchases, particularly for new-energy vehicles, including lower costs for electric-vehicle charging and extending tax breaks. In June, the Ministry of Commerce launched a six-month campaign to boost car purchases and drive electric vehicle adoption in rural areas.
Technology
The Communist Party and government issued a rare joint pledge on July 19 to improve conditions for private businesses after wrapping up an almost two-year regulatory crackdown of the technology sector. Beijing outlined 31 measures that included promises to treat private companies the same as state-owned enterprises, consult more with entrepreneurs on drafting policies, and cut market entry barriers for firms.
On July 13, the top internet regulator released 24 guidelines for ChatGPT-style services, loosening some restrictions it proposed several months previously. On July 27, the central bank asked lenders and financial markets to provide more support for innovation and tech-related acquisitions, and to boost investment in startups.
Private businesses
On Aug. 1, the National Development and Reform Commission pledged to boost credit to private companies and extend other funding measures to small firms. That includes expanding a bond credit enhancement tool that is backed by financial institutions to all qualified private companies, and a promise to raise the amount of credit loans for the sector.
The NDRC released a plan on July 24 encouraging private firms to invest in key industries like transportation, water conservation, clean energy, new infrastructure, advanced manufacturing and modern agricultural facilities. Local governments have submitted more than 2,900 projects, worth a total of 3.2 trillion yuan ($445 billion), that businesses can invest in. The NDRC will also seek to finance the projects through bank loans and real estate investment trust products.
Interest rates
The People’s Bank of China on August 15 cut its main policy interest rate, a surprise move that marked the steepest reduction to the rate on its one-year loans since 2020. The move came shortly before the release of July data that showed weak consumer spending growth, sliding investment and rising unemployment. It was the second trim to that rate this year.
Some economists were encouraged by the August cut, saying it set the stage for even more fiscal support. But in another surprise, Chinese banks later kept a key interest rate that guides mortgages on hold. That highlighted the dilemma facing Beijing as it seeks to boost borrowing by cutting rates while trying to preserve financial stability.
Financial markets
Chinese authorities have stepped up efforts to bolster markets amid an intensifying selloff. Officials in August asked some investment funds to avoid becoming net sellers of equities and encouraged companies listed on Shanghai’s science and technology board to buy back their shares, among other measures.
China is also mulling a cut to the stamp duty on stock trades, which would be a major attempt to revive confidence. The country has’t reduced the duty since 2008.
To curb the currency’s decline, the central bank has escalated its defense of the yuan in recent weeks by setting stronger daily fixings and pushing up funding costs in the offshore market. Even so, the currency has continued weakening.
© 2023 Bloomberg
