Consumer spending in China is sluggish, exports are flagging, and local government debt is skyrocketing. There are emerging signs of deflation, while a property downturn has weighed on the overall economy. To resurrect the world's second-largest economy, the Politburo, a top decision-making body of the ruling Communist Party, said on Monday there would be policy adjustments to 'optimize property policies at an appropriate time' and adopt a strategy to resolve local debt risks, according to the state-run media Xinhua news agency.
The Communist Party's 24-member Politburo will concentrate on "counter-cyclical" macroeconomic policy adjustments to spur demand as a post-pandemic recovery flounders:
"Currently, China's economy is facing new difficulties and challenges, which mainly arise from insufficient domestic demand, difficulties in the operation of some enterprises, risks and hidden dangers in key areas, as well as a grim and complex external environment," Xinhua cited the Politburo as saying.
The Politburo continued as per Xinhua:
Leaders pledged to "intensify macroeconomic policy adjustments, focus on expanding domestic demand, boosting confidence and preventing risks, and continuously promote the improvement of economic operations."
The announcement by top policymakers comes as China, whose economy is not only creaking with youth unemployment at all-time highs..
... but is also on the verge of deflation and desperately needs much more stimulus ...
And as we noted two weeks ago, there were signs that more economic support measures were 'imminent' after authorities took yet another step toward supporting the ailing property market by extending loan relief for developers.
Xing Zhaopeng, senior China strategist at Australia & New Zealand Banking Group Ltd., told Bloomberg there are two main messages from the Politburo meeting:
- One, it brings domestic demand ahead of industrial policy, suggesting stronger counter-cyclical measures.
- Two, it also stressed a big plan for local government debt disposal.
Bloomberg noted other highlights in the statement:
- A pledge to drive platform firms' healthy development
- Will boost car, electronic products consumption
- Economic policies to be targeted, powerful
- A vow to increase investors' confidence, general confidence in the economy
It also appears that President Xi Jinping's mantra that "housing is for living, not for speculation" was left out of the statement.
China omits President Xi Jinping’s official slogan on curbing housing speculation at a key economic policy meeting, underscoring a deeper shift toward supporting the property market https://t.co/G7CsZnQXEW
— Bloomberg Asia (@BloombergAsia) July 24, 2023
"It seems the government has recognized the importance of policy change in this sector to stabilize the economy," said Zhang Zhiwei, chief economist at Pinpoint Asset Management Ltd.
Beijing's attempt to stabilize the real estate market, which according to Goldman, is the world's largest asset class, suggests the housing market downturn and developer risks are likely worse than previously thought.
