Chinese leaders pledge further support for flagging economy

A debt crisis in China’s colossal property sector is weighing on the world’s number two economy – Copyright AFP Jade GAO

President Xi Jinping and other Chinese leaders stressed the need for further reform to support economic activity and the country’s ailing property sector, state media reported Tuesday, following a key meeting centred on boosting growth.

Beijing is racing to achieve its goal of five percent annual growth in 2024, a target considered ambitious by many experts as the world’s second-largest economy faces headwinds including an indebted real-estate market, flagging consumption and high youth unemployment.

Tuesday’s gathering of the Communist Party’s powerful Politburo of senior officials was billed as a chance for top leaders to take stock of the current economic situation and set out policy directions for the second half of the year.

They warned that “adverse effects brought about by current changes in the external environment are increasing”, while there are “many risks and hidden dangers in key areas”, state news agency Xinhua said.

The report did not include any specific new policies, though attendees highlighted the need to ease local debt pressure and “accelerate the construction of a new development model” in the property sector.

Rating agency Fitch in April slashed its outlook on China’s sovereign credit to negative, citing heightened risks to the country’s public finances.

Second-quarter growth slowed sharply to 4.7 percent year-on-year, according to official figures published this month.

Authorities have announced various measures in recent months — including several key interest rate cuts — in a bid to get the economy humming again.

Zhang Zhiwei, President and Chief Economist at Pinpoint Asset Management, said in a note that Tuesday’s meeting showed “the government recognises that domestic demand is weak and plans to prepare some policy measures in the pipeline to address the problem”.

“Monetary policy has already turned more supportive with the rate cuts recently, which is positive for the economy,” said Zhang, adding that broader changes to fiscal policy could be “much more supportive”.

“It is not clear at this stage if such a shift of fiscal policy will happen.”

The Politburo meeting readout also outlined new efforts to boost domestic consumption and household welfare. 

But Capital Economics’ Julian Evans-Pritchard said: “The lack of any specifics means it is unclear what it will entail in practice.

“Overall, the communique suggests the primary focus of policy remains on economic security and nurturing new productive forces in high-end sectors.”