On 11 June, at a press briefing held by the State Council Information Office, experts foresaw a Chinese economy with resilience, potential and a positive prospect in the long run and expected it to rebound in the second half of the year.
Stabilize employment and promote consumption
The outbreak of the pandemic suppressed the consumption of services while increasing that of food. Liu Huan, Counsellor of the State Council and former head of the School of Public Finance and Tax of the Central University of Finance and Economics, said, “In big cities, daily consumption was not reduced much; supermarkets and open markets remained active. But services consumption was down, such as education of children, training, and hairdressing.”
Starting from March, China’s main economic indicators continuously improved and the consumer market gradually warmed up. Liu noted, “With the economy in recovery, China has moved past the most difficult period. We are confident in what is coming next. While it may take some time for the indicators to move up, it is expected the economy will pick up after the pandemic stabilizes. I believe we will see a marked uptick in second quarter and a surge in the third quarter.”
Employment, which is the most important of the “six stabilization goals”, plays a big role in consumption. According to Mr. Wang Zhaoxing, Counsellor of the State Council and former vice chairman of China Banking and Insurance Regulatory Commission, only with stable employment can incomes and consumption capacity stay strong, “On the one hand, disposable incomes should be continuously increased to support consumption capacity and demand; and on the other hand, goods and services should be supplied to tap into the tremendous consumption potential in housing, education, old-age care, and health care. This is the way for the consumer market to keep growing and to give strong support to the overall economy.”
Liu Huan said, “Growth rate is not an end in itself. Jobs for the majority of the population are critical. To ensure security in the six areas, especially employment, basic living needs, industrial and supply chains and normal functioning of primary-level governments, the key is to ensure business operations, as this is the source of jobs, incomes, and government revenues. Businesses should be supported with financial resources.”
Mutual reinforcement of fiscal and monetary policies
To evaluate the effect of a proactive fiscal policy, both the total volume and new increments in fiscal expenditures should be taken into account.
In addition to the two trillion RMB of new fiscal deficit and special treasury bonds for fighting COVID-19, this year there will also be 2.5 trillion RMB in the reduction of fees and taxes, 1.6 trillion RMB of newly issued local government bonds, 100 billion RMB of railway funds, which add up to 6.2 trillion RMB in total. Mr. Zhu Guangyao, Counsellor of the State Council and former vice minister of finance, believed the amount was considerable and would show its effect in the second half of this year.
At this stage, China still enjoys much leeway in fiscal and monetary policies. Many monetary tools remain available and interest rates can still be moved. Many experts at the meeting confirmed the importance to create synergy between fiscal and monetary policies.
Wang Zhaoxing proposed a three-pronged strategy. First, reduce fees and taxes that burden the business sector. Low-cost credit from the central bank will beef up liquidity and help businesses recover.
Second is to raise incomes for low-income groups to stimulate consumption and investment. Wang said, “There remains much potential in fostering effective consumer and investment demand through fiscal and monetary policies.”
Third, the central bank boosts market liquidity as a way to complement the fiscal measures aimed at elevating consumption. He noted, “There is a significant demand in China for the bonds of central and local governments from individuals and institutional investors. Issuing more government bonds will complement the fiscal policies. Monetization of fiscal deficits is not needed right now.”
Financial support for real the economy should be “prompt, straightforward, and precise”
In late May, the Financial Stability and Development Committee of the State Council rolled out 11 financial reforms. On 1 June, 30 measures were introduced with Guiding Opinions on Enhancing Financial Services for Micro, Small, and Medium-sized Enterprises, a document jointly released by the eight agencies of the People’s Bank of China, China Banking and Insurance Regulatory Commission, National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Finance, the State Administration for Market Regulation, and the State Administration of Foreign Exchange. Wang Zhaoxing said, “All of these steps have been taken to buttress the real economy, especially the small and micro businesses hit particularly hard by the pandemic, and steady the course of recovery. ”
Specifically speaking, financial support for the real economy should be prompt, straightforward, and precise. Actions should be taken as soon as possible to help challenged businesses tide over the difficulties and resume operation; the two trillion RMB fiscal package and support from the central and commercial banks must directly benefit small and micro businesses and other market players, with no delays or distractions; fiscal and credit support must precisely target the businesses that need help and are competitive. Wang said, “It is important to meet effective business demand with effective financial supply.”
Tang Min, Counsellor of the State Council and Executive Vice Chairman of YouChange China Social Entrepreneur Foundation, acknowledged the headwinds against international logistics and overseas orders due to the global pandemic, but remained confident in an improving situation as economic activities gradually move back on track and the domestic market revitalizes. “The Chinese economy will come back in the second half.”
Wang Zhaoxing added, “We are fully confident in the recovery and growth of the Chinese economy, which is supported by a strong material foundation, well-established infrastructure system and industrial chains, and a huge domestic market. With 1.4 billion consumers, the Chinese economy is on a solid footing. Effective steps are being taken to energize the domestic market. Effective demand and supply will be lifted, which will see the economy steadily grow.”
