China’s Policy Support for Economy: Focus on Demand

According to the state-run news agency Xinhua, the Politburo, a leading decision-making body of the Chinese Communist Party, announced that China will continue to provide support for its economy with emphasis on addressing the inadequate domestic demand.

Xinhua reported that the pressures of the economy, including declining demand, supply disruptions, and diminishing expectations, have diminished as a result of better-than-expected growth during the first quarter. The announcement came after a Politburo meeting that was presided over by President Xi Jinping.

According to Xinhua, the Politburo stated that market demand has been slowly recovering, and the economy is showing a positive trend with a good start to economic operation. However, the leaders also emphasized that the recovery is not strong enough and there are new challenges in upgrading and transforming the economy.
The Politburo added that the current improvement in the economy is mainly restorative, with weak momentum and insufficient demand. The key to sustaining recovery and improving the current economy is to restore and expand demand, according to the Politburo.
The Politburo recommended that proactive fiscal policy should be reinforced and work alongside monetary policy to stimulate demand, as they reaffirmed the current stance.

Zhiwei Zhang, Chief Economist at Pinpoint Asset Management, said that the recent Politburo meeting indicates that the government is likely to maintain its supportive fiscal and monetary policy in the second quarter. Although China’s economy grew faster than expected in the first quarter after COVID restrictions were lifted, there are still challenges and the recovery is not consistent across all sectors.

The Politburo acknowledged that while there are some areas of weakness in the economy, such as in the property market and local debt risks, there is a need to increase urban and rural household income to stimulate services consumption and encourage private investment. Despite some improvements, there are concerns about the sustainability of the economic recovery due to global growth slowdown and lower confidence and demand.

According to the Politburo, China aims to provide more employment opportunities for college graduates and ensure job stability for migrant workers. Additionally, the government plans to boost business confidence, guide state investment, encourage private investment, and attract foreign investment. The Politburo also stated that reforms will be made to promote fair competition and enterprise development through legal and regulatory changes.

Recently, the Communist Party approved guidance to support the growth of private firms, which contribute significantly to tax revenue, output, and urban employment. The Politburo also emphasized the importance of developing general artificial intelligence, creating an innovation ecosystem, and mitigatin associated risks.

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