China: Re-evaluate economic strategies and fully support the family sector
2024-08-20
■ In July, China's major economic indicators showed mixed performances but still showed signs of moderate economic expansion
■ Since the Third Plenum, the Chinese government has launched an economic strategy centered on comprehensive support for the family sector
China released its leading economic indicators for July on the 15th of last week. The growth of consumption-related indicators such as retail sales (up 2.7% year on year) and service industry production index (up 4.8% year on year) accelerated. In comparison, the growth momentum of industrial production (up 5.1% year on year) and fixed assets investment (excluding rural areas, up 3.6% year on year since the beginning of the year) slowed down. Like last month, the data content is mixed, but the economy is still expanding moderately overall. Although the growth of consumption-related indicators is lower than the Chinese government's growth target of around 5%, retail sales (a month-on-month increase of 0.35%) have shown significant improvement compared to the previous month, indicating that household consumption is recovering from the slump in June. In terms of real estate-related indicators, among the residential prices in 70 major cities (calculated by Reuters), the decline in newly-built housing (a year-on-year decrease of 5.0%) and second-hand housing (a year-on-year decrease of 8.2%) has expanded, and the adjustment of real estate prices is continuing. On the other hand, the decline in real estate sales (which has decreased by 18.6% year-on-year since the beginning of the year in terms of building area) has narrowed for two consecutive months. The policy support launched by local governments in May, such as purchasing housing inventory and relaxing housing loan restrictions, shows signs of bottoming out in real estate transactions.
On July 30, the Political Bureau of the Central Committee of the CPC held a meeting at which it decided to expand fiscal expenditure and loosen monetary policy to promote sluggish consumption and domestic demand. The report stated that a similar policy was also confirmed at an informal meeting called the Beidaihe Conference in early August. Specific measures include promoting consumption among low - and middle-income groups, supporting employment for college graduates, and promoting affordable housing. The announced subsidy increases measures target the exchange of high-tech products such as automobiles and home appliances. Although the trade-in policy for durable consumer goods is only for early consumption, in the long run, it will create demand in the short term and help expand household consumption. Taking comprehensive support from the family sector as the core of promoting domestic demand significantly differs from previous economic strategies focused on supporting the corporate sector. The Chinese government's sense of crisis regarding the pressure of domestic demand adjustment has emerged, which stems from complex structural issues such as the adjustment of the real estate market, sluggish labor demand and mismatch between labor supply and demand, excess capital inventory, and debt reduction. However, strengthening the "new quality productivity" proposed at the Third Plenum means enhancing the supply capacity in cutting-edge fields. At a time when sluggish demand has become the fundamental cause of economic stagnation, failure to create demand for these areas may lead to new surpluses in the future.
■ Since the Third Plenum, the Chinese government has launched an economic strategy centered on comprehensive support for the family sector
China released its leading economic indicators for July on the 15th of last week. The growth of consumption-related indicators such as retail sales (up 2.7% year on year) and service industry production index (up 4.8% year on year) accelerated. In comparison, the growth momentum of industrial production (up 5.1% year on year) and fixed assets investment (excluding rural areas, up 3.6% year on year since the beginning of the year) slowed down. Like last month, the data content is mixed, but the economy is still expanding moderately overall. Although the growth of consumption-related indicators is lower than the Chinese government's growth target of around 5%, retail sales (a month-on-month increase of 0.35%) have shown significant improvement compared to the previous month, indicating that household consumption is recovering from the slump in June. In terms of real estate-related indicators, among the residential prices in 70 major cities (calculated by Reuters), the decline in newly-built housing (a year-on-year decrease of 5.0%) and second-hand housing (a year-on-year decrease of 8.2%) has expanded, and the adjustment of real estate prices is continuing. On the other hand, the decline in real estate sales (which has decreased by 18.6% year-on-year since the beginning of the year in terms of building area) has narrowed for two consecutive months. The policy support launched by local governments in May, such as purchasing housing inventory and relaxing housing loan restrictions, shows signs of bottoming out in real estate transactions.
On July 30, the Political Bureau of the Central Committee of the CPC held a meeting at which it decided to expand fiscal expenditure and loosen monetary policy to promote sluggish consumption and domestic demand. The report stated that a similar policy was also confirmed at an informal meeting called the Beidaihe Conference in early August. Specific measures include promoting consumption among low - and middle-income groups, supporting employment for college graduates, and promoting affordable housing. The announced subsidy increases measures target the exchange of high-tech products such as automobiles and home appliances. Although the trade-in policy for durable consumer goods is only for early consumption, in the long run, it will create demand in the short term and help expand household consumption. Taking comprehensive support from the family sector as the core of promoting domestic demand significantly differs from previous economic strategies focused on supporting the corporate sector. The Chinese government's sense of crisis regarding the pressure of domestic demand adjustment has emerged, which stems from complex structural issues such as the adjustment of the real estate market, sluggish labor demand and mismatch between labor supply and demand, excess capital inventory, and debt reduction. However, strengthening the "new quality productivity" proposed at the Third Plenum means enhancing the supply capacity in cutting-edge fields. At a time when sluggish demand has become the fundamental cause of economic stagnation, failure to create demand for these areas may lead to new surpluses in the future.