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Adviser calls for stronger policy shifts amid recovery risks

By ZHANG YUE | CHINA DAILY | Updated: 2023-06-20 09:03
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Consumers attend the opening ceremony of the new Jingxi Joy City shopping mall in Beijing on Sunday. This year's June 18 shopping festival and Father's Day, which also fell on Sunday, saw strong consumption further boosting the nation's economic recovery. HANG WEI/CHINA DAILY

As China's economic recovery is facing downward pressure, stronger and clearer policy shifts are needed to restore business confidence and realize sound growth, a political adviser said.

Yin Yanlin, former deputy director of the office of the Central Committee for Financial and Economic Affairs, said more forceful policies are needed to get the market confidence back on track.

He made the comments on Saturday at a forum organized by the Academic Center for Chinese Economic Practice and Thinking at Tsinghua University in Beijing, after economic data for May showed industrial output grew by a mere 3.5 percent year-on-year, slower than the 5.6 percent expansion in April. Year-on-year growth of both fixed-asset investment and retail sales also slowed in May.

"Economic activities have noticeably weakened in general, with downside risks accumulating," he said at the forum. "While annual growth figures for the second quarter might come in relatively high due to last year's low base, the foundation for economic recovery is clearly not solid. It's far from the goal set by last year's Central Economic Work Conference for overall economic recovery."

There is still a considerable gap between the current situation and the central authorities' goal of ensuring stable development in the real estate market, and the impact of real estate on the economy "should never be overlooked", Yin said.

May data showed China's property sector is struggling and has yet to turn around, despite signs of recovery earlier this year. Since April, market analysts have been expecting that China will likely support the real estate sector through fiscal stimulus policies and similar means.

"Such a faltering real estate sector not only hampers both upstream and downstream industries, but clogs liquidity flow toward the real economy," Yin said.

He further said this could exacerbate local debt issues, stoking a fear of a potential risk, like local government debt snowballing into a "black swan event".

"If not addressed properly, the risk of defaults by local government financing vehicles will lead to growing nonperforming loans at small and medium-sized banks, potentially triggering regional, even systemic, financial risks."

Yin, now a deputy-director of the Economic Affairs Committee of the National Committee of the Chinese People's Political Consultative Conference, the nation's top political advisory body, said the inadequate delivery of policies is one major reason for the current sluggish recovery. Many local governments, he said, have proposed loosening measures concerning homebuying and sales restrictions. Yet, in reality, such supportive measures are still tentative and have not fundamentally improved homebuying expectations.

"Efforts should be made to resolutely break the negative cycle of expectations," he said. "The formulation of macroeconomic policies should see boosting of confidence and improving market expectations as the base."

Last Friday's executive meeting of the State Council, China's Cabinet, said the government is considering various macroeconomic policies to boost demand and defuse risks.

Zhang Bin, deputy director of the Institute of World Economics and Politics under the Chinese Academy of Social Sciences, said he expects more forceful loosening of monetary policy so that it can quickly and fully complement fiscal policy maneuvers aimed at strengthening the current economic recovery.

"If a substantial interest rate cut — say, by 100-200 basis points — is implemented, it can lead to a sustained improvement in economic conditions and help overcome the problem of insufficient aggregate demand," he said.

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