Economic Measures and Commitments by Chinese Leaders

By Ellen Zhang and Marius Zaharia

BEIJING/HONG KONG (Reuters) – Chinese leaders pledged on Thursday to deploy necessary fiscal spending to meet this year’s economic growth target of roughly 5%, acknowledging new problems and raising market expectations for additional stimulus alongside measures announced this week.

The remarks included guidance to the government to support household consumption and stabilize the troubled real estate market, emerging from a monthly meeting of top Communist Party officials, the Politburo. This September meeting is not typically held for macroeconomic discussions, suggesting growing anxiety about a slowdown in growth momentum.

The world’s second-largest economy faces significant deflationary pressures due to a sharp property market downturn and weak consumer confidence, exposing its over-reliance on exports amidst an increasingly tense global trade environment.

A range of recent economic data has missed forecasts, heightening concerns among economists regarding the viability of the growth target and the possibility of a longer-term structural slowdown.

State media reported that “new situations and problems” demand a sense of “responsibility and urgency,” as discussed in the Politburo meeting.

China’s central bank on Tuesday announced its most aggressive monetary easing since the pandemic, including cuts to various interest rates and a 1 trillion yuan ($140 billion) liquidity injection into the financial system, among other measures.

Beijing is considering injecting up to 1 trillion yuan into its largest state banks to bolster their capacity to support the struggling economy, primarily by issuing new special sovereign bonds, Bloomberg News reported on Thursday.

Chinese real estate shares surged more than 8%, while their Hong Kong counterparts soared 9% following the Politburo announcement, contributing to broader stock market gains. The yuan and Chinese bond yields also saw increases.

The Politburo called for the government to promote the stabilization of the real estate market, expand a whitelist of housing projects eligible for further financing, and revitalize idle land, according to the readout.

Officials committed to “respond to people’s concerns, adjust home purchase restriction policies, lower existing mortgage rates and enhance land, fiscal, tax and financial policies promptly to push forward the new model of property development.”

‘RIGHT DIRECTION’

The Politburo’s approval of further stimulus signals a strategic shift in macro policy, moving from piecemeal policies to a highly coordinated package, according to Bruce Pang, Chief Economist at Jones Lang LaSalle.

“A pickup in government spending will likely be sufficient to boost business confidence, market sentiment, and economic activities, helping China align with potential trend growth.”

China will effectively utilize ultra-long special sovereign bonds and local government special bonds to support governmental investment, as vowed by the Politburo. It also committed to enhancing income for low- and middle-income groups, supporting consumption, and improving childbirth support policies.

In a related announcement, the ministries of finance and civil affairs declared they would distribute a one-time allowance to disadvantaged individuals ahead of a national holiday in early October. They also pledged to prioritize employment and promote wage growth in response to pay cuts in certain sectors and rising youth unemployment.

“Falling inflation and private sector deleveraging suggest that rate cuts alone won’t significantly boost domestic demand,” noted Capital Economics analyst Julian Evans-Pritchard. “Substantial fiscal support is necessary for that, which is hinted at in the Politburo communique.”

As indicated by central bank Governor Pan Gongsheng on Tuesday, top policymakers announced plans to lower the reserve requirement ratio and perform “forceful” interest rate cuts.

Typically, Politburo meetings do not disclose specific steps or details regarding the additional stimulus being planned.

Officials reiterated their commitment to introducing a law to support the private sector but did not specify when the legislation would be released or its content.

($1 = 7.0198 Chinese yuan renminbi)