China wants more domestic consumption
"China needs to cement its domestic economic growth momentum and guard against potential risks in financial sectors," the Politburo Standing Committee said in a statement late last week which was published by the official Xinhua News Agency.
Macro-economic policies should be stabilised and micro controls in some sectors should be loosened, it said after what Xinhua said was a "special session" on the economy.
Recent data has showed China's manufacturing is expanding at a slower pace, adding to evidence a recovery is losing steam after an unexpected slowdown in growth in the first quarter.
The Politburo Standing Committee's comments "provide support to the State Council's decisions and don't imply policy changes," said Ding Shuang, senior China economist at Citigroup in Hong Kong. "While the leadership is saying China needs to boost growth momentum, it's also warning about financial risks - it isn't going to pursue the old way of stimulus to push up growth at the expense of long-term structural reform."
The Politburo Standing Committee pledged to accelerate the establishment of a standard local government financing mechanism after "explosive" growth in local debt raised concerns about the financial health of the economy, according to Xinhua's report.
Greater efforts are needed to bring out the potential of domestic consumption, according to the statement. While focusing on improving the quality and efficiency of economic development, the country should maintain a proactive fiscal policy and prudent monetary policy while making them more targeted, it said.
On housing, the Standing Committee said a "good job" should be done on development of the real estate industry and building affordable housing. The government will remove or delegate power to approve investment projects in some areas while strictly limiting the "indiscriminate expansion" of energy-inefficient and polluting industries, it said.
Xu Gao, chief economist at China Everbright Securities Co in Beijing, said this was the first time the Politburo Standing Committee held an economy-focused meeting in April since 2004, when it decided to step up efforts to control overheating investment. The meeting delivered a "strong message of stabilising growth," he said in a note. Normally such meetings are held in February, July and at the end of the year, Mr Xu said.
"As growth slows, pressure on the government is building to loosen policy further," Zhang Zhiwei, Nomura's chief China economist in Hong Kong, said. The Standing Committee's comments show "the senior leadership has reached a consensus to tolerate slower growth" and indicate that policy stimulus is unlikely, he said.
Nomura estimates economic growth will slow to 7.2 per cent in the fourth quarter year-on-year, and will be 7.5 per cent for the full year. China's local governments may have more than 20 trillion yuan ($2.86 trillion) of debt, former finance minister Xiang Huaicheng said this month, almost double the figure given in a 2011 report by the National Audit Office.
Frequently Asked Questions about this Article…
The Politburo Standing Committee said greater efforts are needed to bring out the potential of domestic consumption and to cement domestic economic growth momentum. It recommended stabilising macro-economic policies, loosening some micro controls in targeted sectors, and keeping a proactive fiscal policy alongside a prudent, more targeted monetary policy.
According to economists quoted in the article, China’s leadership is signalling a preference for cautious, targeted measures rather than the old style of large, broad stimulus. Officials emphasised guarding against financial risks and indicated policy support would be more targeted to avoid undermining long-term structural reform.
The Standing Committee pledged to accelerate the establishment of a standard local government financing mechanism in response to “explosive” growth in local debt. The article also cites a former finance minister’s estimate that local governments may have more than 20 trillion yuan (about $2.86 trillion) of debt, which is prompting efforts to limit financial risk.
Recent data cited in the article showed China’s manufacturing is expanding at a slower pace, adding to signs that the economic recovery is losing steam after an unexpected slowdown in first-quarter growth. That slower manufacturing pace is part of the reason leadership is discussing ways to stabilise growth.
Targeted fiscal measures and a prudent monetary stance aim to support specific parts of the economy—like encouraging consumption—without creating broad financial risk. For everyday investors, that suggests policy support may help consumption-driven sectors while avoiding large-scale stimulus that could create asset bubbles or long-term imbalances.
The committee said a “good job” should be done on developing the real estate industry and building affordable housing. It also said the government will remove or delegate some powers to approve investment projects, while strictly limiting indiscriminate expansion of energy-inefficient and polluting industries.
The article cites Ding Shuang, senior China economist at Citigroup, who said the comments support the State Council and do not imply radical policy changes; Xu Gao, chief economist at China Everbright Securities, who noted the unusual timing of the meeting and its stabilising message; and Zhang Zhiwei, Nomura’s chief China economist, who said leadership is prepared to tolerate slower growth. Nomura estimated growth slowing to 7.2% year-on-year in the fourth quarter and 7.5% for the full year.
The Standing Committee said it will strictly limit the indiscriminate expansion of energy-inefficient and polluting industries, suggesting those sectors could face tighter approval and investment restrictions. At the same time, policy looks to be more supportive of areas that boost consumption and improve economic quality and efficiency.
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