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Demand recovery to be priority

Further easing of monetary policy likely to be on agenda during annual meeting

By Zhou Lanxu, Ouyang Shijia, and Liu Zhihua | China Daily | Updated: 2024-02-27 23:52
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A view of Beijing's CBD area. [Photo/VCG]

Chinese policymakers will likely prioritize the recovery of demand this year as a crucial step to promote steady economic growth, while fine-tuning of housing market policy and a further easing in macroeconomic policies are necessary, economists and experts said.

The comments come as focus turns on how China will draw up key economic targets and policies to push the world's second-largest economy through challenges at home and abroad when the country's top legislature and top political advisory body meet early next month at the annual two sessions.

Experts highlighted the lack of demand as the most urgent and prominent challenge that deserves policymakers' attention, as the year-on-year growth of China's consumer price index, a main gauge of inflation, stayed negative for four consecutive months for the first time since 2009 as of January.

"The main challenge facing the Chinese economy is insufficient demand, as well as the resultant weakening of expectations, with the subdued housing sector the main reason for the situation," Xu Gao, chief economist at BOC International, said.

Boosting demand should be taken as a key means to stabilize economic growth, Xu said, adding that it is necessary to fine-tune the focus of property sector support policy to addressing property developers' financing woes.

He suggested the country set aside special relief funds for the real estate industry to the tune of 1 trillion yuan ($138.9 billion) to 2 trillion yuan to help ease the credit risks facing property developers, adding that more real estate projects could encounter financing and delivery problems if the credit risks of developers are not effectively alleviated.

Data from the National Bureau of Statistics showed that 56 out of the 70 large to medium-sized cities in China saw the prices of new residential properties drop in January from the previous month, down from 62 cities in December.

Stating that clear signals of the housing market bottoming out are yet to be seen, Su Jian, a professor of economics at Peking University and director of the university's National Center for Economic Research, said it is advisable to further ease homebuying restrictions in mega cities to help homebuyer confidence recover over time.

To achieve this year's economic growth target — which is expected to be set at about 5 percent — Su said that fiscal and monetary policies may need to be relaxed to boost domestic demand, including boosting the issuance of central government bonds to expand spending in areas like infrastructure.

"The monetary policy is expected to be eased further and interest rate cuts may become the main theme while reductions in the reserve requirement ratio may be adopted as well," Su said. China just reduced a key benchmark for mortgage rates on Feb 20.

The People's Bank of China, the country's central bank, said on Tuesday that it will make full use of monetary policy tools and ensure that the favorable policies regarding re-lending precisely support key areas.

Xiong Yuan, chief economist at Guosheng Securities, said the government may set this year's deficit-to-GDP ratio at more than 3 percent and arrange about 3.8 trillion yuan of annual quota for special-purpose local government bonds at the upcoming two sessions.

Last year's two sessions set the deficit ratio at 3 percent — which was later increased to about 3.8 percent after the issuance of special treasury bonds — and the special-purpose local government bond quota at 3.8 trillion yuan.

Xiong added the country may issue special treasury bonds, leverage financial instruments to boost government-led spending and front-load fiscal stimulus this year.

"With effective measures to tackle the issue of lackluster demand, price levels will gradually return to a reasonable range," said Zou Yunhan, deputy director of the macroeconomic research office at the State Information Center's Department of Economic Forecasting.

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