To keep China’s economic recovery on track

To keep China's economic recovery on track

Since the beginning of 2022, in the face of the complex and severe international environment and the arduous domestic tasks of reform, development and stability, the Chinese government has effectively coordinated the work of prevention and control of the COVID-19 epidemic together with economic development and social of the country. .

“More effective measures should be taken to achieve maximum effect in prevention and control at minimum cost, and to reduce the impact on economic and social development as much as possible,” said Chinese President Xi Jinping. in a meeting of the Permanent Committee of the Politician. Bureau of the Central Committee of the PCC in March.

Shanghai and Beijing, China’s two major cities, have been affected by the epidemic, which has had a negative impact on China’s economy. Under these circumstances, the Chinese economy still achieved positive growth in the second quarter, which fully demonstrates the resilience, potential and vitality of the Chinese economy.

In the second half of the year, the external environment is full of uncertainty. The conflict between Russia and Ukraine continues to affect energy and food supplies, increasing the global risk of “stagflation”. Monetary policy in the United States and other major economies tightens further and volatility in global financial markets may increase. China will face risks such as weakening foreign demand, turbulence in global financial markets and geopolitical conflict.

Internal demand will become the key to stabilizing the macroeconomic situation. From the perspective of national development, China’s market is large, industrial and supply chains are complete, and scientific and technological innovation is developing rapidly. The long-term economic foundations for development have not changed. Short-term economic pressure comes mainly from the impact of non-economic factors.

Although the gross domestic product (GDP) growth rate in the second quarter slowed significantly, affecting the realization of the 5.5 percent growth target at the beginning of the year, the stable economic operation of China has a solid foundation. Its consumer price index (CPI) is in the desirable range, the employment situation is generally stable, the fiscal deficit rate is relatively low, monetary policy is prudent, and there is ample room for macro policies.

With the optimization of the coronavirus disease prevention policy, a series of economic stabilization policies will gradually take effect, and market expectations and confidence will continue to recover. China’s economy is expected to pick up quarter by quarter in the second half of the year, but there are challenges such as difficulties in epidemic prevention and control, insufficient market demand and weak expectations of players of the market

During the second half of the year, it is expected that consumption will gradually recover under the premise that the epidemic is controllable. The easing of the epidemic situation will also create conditions for the resumption of offline consumption such as accommodation, catering, culture and entertainment. In many places, various consumption promotion activities are carried out and consumption coupons are issued for electronic and energy-saving products.

Automobile consumption is expected to warm up gradually under the political stimulus and the recovery of the industrial chain. The policy of halving the vehicle purchase tax will strongly stimulate the recovery of car consumption. In addition, the current credit financing environment for residents is relatively loose. With the financial support, the ability of residents to purchase cars will be improved.

Fiscal policy will continue to accelerate the recovery of investment in infrastructure. During the second half of the year, investment in infrastructure is expected to be an important driver for stable growth.

It is expected that the effects of the stabilization policy of the real estate market will appear gradually. Therefore, real estate investment will be improved. Real estate regulatory policy is still being loosened, and it is expected that there is still room for downward adjustment of the mortgage interest rate. The real estate market will gradually heat up during the second half of the year.

In the short term, the stabilization policy of foreign trade, the devaluation of the RMB exchange rate, and the continuous recovery of production and supply chains favor the growth of China’s exports. However, China’s export growth will still be under pressure in the future and may fall due to a gradual decline in foreign demand.

In addition, exports from other export-oriented economies are growing rapidly, and some industries in China are facing the transfer of export orders. Vietnam and other Southeast Asian countries have some competitiveness in labor-intensive industries such as textile, footwear, and electronic equipment manufacturing.

Some Chinese foreign trade orders came to Southeast Asia due to the rising cost and the epidemic outbreak. The high price of raw materials squeeze the profit space of foreign trade companies. However, China’s foreign trade has shown great resilience in the first seven months and we are confident of its performance in the second half of the year.

It is imperative that the Chinese government introduce more powerful, precise and effective policies to stabilize growth. The central bank should support financial institutions to carry out consumer credit business through interest discounts.
Consumption should be encouraged through government subsidies and appropriate financial institutions to provide interest-free or interest-free consumer credit. In terms of fiscal policy, in addition to continued tax and tariff reductions to reduce costs for small and micro-enterprises, central and local governments should increase investment in infrastructure to boost domestic demand.
Source: CGTN


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About the Author: Chaz Cutler

My name is Chasity. I love to follow the stock market and financial news!