On 31 July, the Political Bureau of the Communist Party of China Central Committee held a meeting, which was presided over by its General Secretary Xi Jinping, to scrutinise the current economic situation as well as to organize the economic activities for the second half of the year. The meeting stated that, on the whole, the economy was stable throughout the first half of the year and showed signs of positive progress. Additionally, the major indicators of macro-control were within reasonable range. The meeting also pointed out that while the current economic situation was stable—albeit with some changes—, new problems and challenges have also emerged and there have been significant changes in the external environment. In any case, the main contradictions need to be addressed with targeted measures. In the next half of the year, the overall stability of the economic society must be maintained and supply-side structural reform must be enhanced to win the "three tough battles." Additionally, it is necessary to speed up the construction of a modern economic system and promote high-quality development—but achieving all of this is undoubtedly a tall order. What's important then, is to ensure that economic activities are progressing at a reasonable level, that overall coordination is enhanced, that there is policy harmonization, that policies are fine-tuned, and last but not least, that work is carried out meticulously.
The meeting came up with several specific requirements:
Firstly, the health and stability of the economy must be maintained, a proactive fiscal policy must be implemented, and monetary policy must be stable. Fiscal policy must have a larger role to play in increasing domestic demand and restructuring. There must also be a good supply money to maintain a certain level of liquidity in the market alongside efforts to stabalise employment, finance, foreign trade, foreign investment, investment, and future prospects. The legal rights and interests of foreign-funded enterprises must also be protected.
Secondly, strengthening weak links must be the main focus of efforts to enhance supply-side structural reform, while the infrastructure sector must be bolstered to enhance these weak links. Increase innovation, develop new momentum, overcome the institutional obstacles to slashing excess production capacity, lower the costs of businesses, and adequately implement the rural revitalization strategy.
Thirdly, the prevention and diffusion of financial risks must be better aligned with the goal to contribute to the real economy, deleveraging must be carried out resolutely, there must be a firm grasp on the strengths and rhythms of the economy, and the timing of the introduction of policies must be coordinated. The institutional system must bring about innovation in order to enhance the willingness and ability of finance to bolster the real economy.
Fourthly, promote reform and opening up by continuing researching and launching major reform initiatives that are effective. Efforts promoting expansion and opening up must be implemented alongside major initiatives to drastically expand market access to promote the co-construction of the Belt and Road Initiative. Additionally, the first China International Import Expo must be meticulously organized.
Fifthly, there must be a resolve to solve the problem of the real estate market alongside a commitment to the city policy. Promote an equilibrium between supply and demand, maintain reasonable expectations, rectify the order of the market, and keep rising housing prices in check. Accelerate the establishment of a mechanism to promote the stable and healthy development of the real estate market in the long-run.
Lastly, fix up livelihood security and social stability, place more emphasis on stabalising employment, and ensure basic livelihood security in terms of wages, education, and social security. Strengthen the work of poverty alleviation in areas plagued by extreme poverty while enhancing and deepening efforts to increase social stability.
It can be said that the analysis of the economic situation by the Political Bureau of the Central Committee is the most anticipated and important meeting in the country for the second half of the year. So then, how should the communication released by the meeting be interpreted? According to Anbound Think Tank, the Central Committee has already identified that, on the whole, there have been significant changes to the current situation that warrant corresponding changes in economic policy and thinking in the country. Specifically speaking, the following points need to be noted:
1. In anticipation of steady development, the meeting put forward that employment, finance, foreign trade, foreign investment, investment, expectations, etc. need to be stabalised; essentially, it is looking to achieve some form of "overall stability." However, there are as yet no concrete countermeasures that indicate how this stabilisation will be carried out against the backdrop of slowing economic growth.
Employment, finance, foreign trade, foreign investment, investment, expectations, etc. [] Comprehensively sound
2. Foreign investment will benefit. The meeting repeatedly emphasized the need for "stable foreign investment" and to protect the legal interests of foreign enterprises in China. This, in addition to the pro-foreign investment policies that have been rolled out this year and the trend of foreign investment being withdrawn, are strong indicators that new policies will be introduced to bolster and retain foreign investment in the country.
3. If a proactive fiscal policy must be implemented while monetary policy must only be stabilized, it means that macroeconomic policy will take a dive, although it will be a limited one.
4. Hopefully the demand in the domestic market will increase; this re-emphasis on expanding domestic demand has been rare since supply-side structural reforms were undertaken. It is worth noting that the meeting prioritized the strengthening of weak links—this is a subtle change in policy focus.
5. Other than setting the tone for reform, there was also an emphasis on the efficacy of reform as well as an intention to further open up and expand market access—all of this is beneficial to opening up and reform.
6. The central government has decentralized its power in terms of real estate regulation. This means that taxes on real estate are imminent.
7. The tax reduction measures are disappointing. Even though the meeting proposed to reduce costs, it was only from the institutional perspective and it reaffirms the cost reduction measures used in previous supply-side structural reform policies.
8. The infrastructure sector will perhaps remain as a focus and take a dive.
Final Analysis and Conclusion:
The outcomes of the meeting indicate that future development will focus on steady development, that fiscal policy will be more active, and that there will definitely be more reform and opening up.
