The Communist Party of China (CPC) Politburo held a meeting last week to analyze the current economic situation and set out priorities for the second half of this year. While the recently concluded Third Plenum of the 20th Central Committee focussed on the long term, the subsequent Politburo meeting set out the economic priorities for the second half of the year 2024 and promised more concrete measures to boost the economy. The meeting acknowledged the adverse impact from changes in the external environment, and the fact that effective domestic demand remains insufficient. China is set to achieve its economic goals and stronger policies are expected in the second half to stabilize growth. By focusing on real estate, the stock market, private enterprises, and improving employment and incomes, it will boost consumer spending and drive the economic recovery, Yang Delong, Chief Economist at Shenzhen-based First Seafront Fund, told the Global Times. The top leadership vowed to unleash domestic demand, pledged more macro support, warned against “vicious competition” among local companies, and called for the full implementation of policies by local-level officials.
The Politburo meeting focused on current challenges and pressing issues, reflecting China’s emphasis on stable growth, said Su Yue, Principal Economist for China at the Economist Intelligence Unit (EIU). “The urgency of stimulating the domestic economy is highlighted by increased external pressures, including the potential return of former U.S. President Donald Trump.” There are still risks and potential dangers in major sectors, as well as challenges resulting from the replacement of traditional growth drivers with new ones. However, the meeting noted that “those are all issues in the course of development and transformation.” The meeting called for efforts to raise the awareness of risks, to be prepared to deal with worst-case scenarios, and maintain strategic resolve and confidence in the country's development. “The meeting broke down long-term goals into pragmatic, phased and targeted policy priorities that could be carried out this year. Those measures could then be assigned to individual departments for further execution," Li Chang'an, Professor at the Academy of China Open Economy Studies of the University of International Business and Economics (UIBE), told the Global Times.
“Compared with recent top-level economic policy meetings, Beijing acknowledged mixed economic performance and pledged to strengthen countercyclical policy actions, implying they will do more to support growth in the second half,” said Lu Ting, Chief China Economist at Nomura Holdings in Hong Kong. The clamor for more supportive policies has been growing since stocks on the mainland and Hong Kong resumed their downtrend after a lingering housing crisis and weak consumer spending pressured growth in the second quarter.
The Communist Party’s Politburo typically reviews the economic situation and policies at its April, July and December meetings every year. The July meeting sets the policy tone for the second half, while the December gathering prepares the policy framework for the following year. “This is arguably more worthy of attention than the Third Plenum reforms from an investment perspective as the July Politburo meeting's outlook is much shorter term and consequences are more tangible,” Everbright Securities said in a research note.
The Politburo meeting announced stronger countercyclical measures, as well as plans to expand domestic demand in order to prevent excess capacity. China’s central bank may cut the reserve requirement ratio (RRR) by a quarter of a full percentage point this quarter, reduce the policy rate on the reverse repo by 10 basis points in the fourth quarter, and unleash more liquidity via the medium-term lending facility or re-lending, if necessary, according to Goldman Sachs. On the fiscal front, China will probably increase government-bond sales in the second half to support spending and infrastructure investment. Should any unexpected growth shock occur, Beijing may even consider boosting credit support from policy banks, tapping quotas on local-government debt issuances and raising the budget deficit, Goldman said, adding that “policymakers focused on fiscal, consumption and property policies. We view the signals from the July Politburo meeting as pro-growth.” While some are still skeptical about the prospect of the policy support because of a lack of details and a meaningful change of the fiscal policy stance from the meeting, UBS Group said that Beijing may have intentionally kept some powder dry preparing for potential economic weakness, in case higher tariffs are imposed by the U.S. after the November presidential election. A 10% increase in the levy by Washington may reduce China’s growth by between 0.3 and 0.4 percentage points annually in 2025 and 2026, according to the Economist Intelligence Unit (EIU), the South China Morning Post reports.
Another headache for the top leadership is the economic divergence between the two megacities of the Greater Bay Area – Guangzhou and Shenzhen. Despite being just 100 km apart, Guangzhou’s gross domestic product (GDP) grew by a mere 2.5% year-on-year in the first half – a rate lower than Guangdong’s and the national average – to CNY1.43 trillion. The tech hub of Shenzhen, though, revealed a glowing report card as its economy expanded by 5.9% to CNY1.73 trillion, ranking only after Shanghai and Beijing. A divergence in economic performance was cited as one of the major challenges facing China’s economy in an official readout of July’s Politburo meeting.
Analysts attributed the yawning gap between Guangzhou and Shenzhen to the combination of an export boom, weak domestic demand, and a slowdown in traditional manufacturing. “Shenzhen’s new industries and hi-tech investment are growing rapidly, but Guangzhou and Foshan still rely heavily on traditional manufacturing and they need to expedite transformation,” Guo Wanda, Vice President of the China Development Institute said. “Shenzhen’s private enterprises are very dynamic and technology iteration is fast. The industrial chains surrounding Shenzhen’s hi-tech manufacturing, like electric vehicles, are very long, driving other industries such as electronics and information.” Shenzhen, which has nurtured the likes of Huawei Technologies, Tencent and BYD, unseated Shanghai as China’s largest manufacturing city in 2022. Guangzhou, meanwhile, is grappling with headwinds on many fronts from investment, manufacturing, consumption to foreign trade.
