Bolstering Economy for a Rebound and Positive Growth in the 2nd Half of 2024
Wen Bin, Chief Economist and Dean of the Research Institute at China Minsheng Bank
Policy Direction: We persist in capitalizing on favorable trends. The meeting of the Political Bureau of the CPC Central Committee held on April 30th outlined six key areas of focus: actively expanding domestic demand, developing new quality productive forces tailored to local conditions, steadfastly deepening reforms and broadening openness, continuously preventing and resolving risks in key areas, solidly advancing green and low-carbon development, and effectively ensuring and improving people's livelihoods. Notably, compared to the government work report, "expanding domestic demand" has been prioritized again, indicating a stronger sense of urgency from the central government to address the main challenge of "still insufficiency in effective demand" through proactive measures. The emphasis on "developing new quality productive forces" has shifted from "accelerating" to "tailored to local conditions" to avoid scenarios like "hasty actions and bubble formation."
Fiscal Policy: There is ample room for increased effort. Influenced by the decline in fiscal revenue growth and a strong economic start, fiscal policy has not been fully utilized in the first half of this year. Looking ahead to the second half, on top of implementing previously issued measures, proactive fiscal policy is expected to further intensify and expand its scope, focusing on key areas to enhance the internal momentum of economic development and improve the quality and level of domestic circulation. On one hand, we will ensure the effective implementation of policies to enhance the efficiency and effectiveness of funds. We will coordinate the use of long-term special government bonds, local government special bonds, and central budget investments to promote key areas and major projects, leveraging the catalytic effect of government investment; accelerate fiscal expenditure to support areas such as science and technology, livelihoods, and education, which are closely related to China's national development and strategic planning; and deeply implement a comprehensive debt reduction plan to ensure that provinces and counties with high debt risks can truly reduce their debt while maintaining stable development. On the other hand, considering the need to stimulate domestic effective demand, fiscal policy may consider additional measures and incremental policy tools. First, we will optimize tax and fee preferential policies, continue to implement structural tax cuts around scientific and technological innovation, and key groups' entrepreneurship and employment, while improving the joint supervision and joint punishment mechanism for enterprise-related fees to enhance the legal level of enterprise-related fee supervision. Second, we will approve new special refinancing bond quotas, estimated to be around 1 trillion yuan. Third, we will strengthen the coordination of fiscal and monetary policies, increase the issuance of PSL to drive key project construction, and introduce new policy-based and development-oriented financial instruments. Fourth, we will enhance the vitality of state-owned capital operating profits, surplus profits, and state-owned assets.
Monetary Policy: The space for easing has been opened up. This year, monetary policy has continued to maintain a positive tone, providing financial support for the continuous rebound and improvement of the economy. In terms of total volume, we have lowered the reserve requirement ratio, reduced policy interest rates, and driven the downward trend of financial market interest rates such as the loan market quotation rate. In terms of structure, we have established a re-lending facility for scientific and technological innovation and technical transformation, increasing financial support for scientific and technological innovation and equipment updating and transformation. We have introduced a combination of real estate support policies to accelerate the de-stocking of existing commercial housing in a market-oriented way. In terms of transmission, we have focused on regulating market behavior, revitalizing inefficient stock financial resources, and ensuring the transmission of monetary policy through promoting balanced credit distribution, managing and preventing idle funds, and rectifying manual interest subsidies.
Furthermore, the central bank has indicated that it will continue to optimize the monetary policy framework. This includes optimizing policy interest rates, narrowing the interest rate corridor, and enriching the monetary policy toolkit. Additionally, in the face of insufficient effective demand in the market, a combination of intensified fiscal policy and coordinated monetary policy is expected to gradually become the main policy approach.
Published on August 29, 2024