Second Half of 2019:High-Quality Development Continues

by Pan Helin

On July 30， the Political Bureau of the Central Committee of the Communist Party of China （CPC） held a meeting to study the current economic situation and lay out priorities for Chinas economic work in the second half of 2019. The meeting stressed that Chinas economy faces new risks and challenges. With greater downward pressure， China should be increasingly mindful of potential danger， understand development trends， focus on major problems and transform risk into opportunity.

According to data released by the National Bureau of Statistics， Chinas GDP in the first half of 2019， based on preliminary accounting， reached 45.1 trillion yuan （about US$6.44 trillion）， a year-on-year increase of 6.3 percent. The year-on-year growth rate of the first quarter was 6.4 percent， and that of the second quarter was 6.2 percent. Data shows that Chinas economy grows steadily even as the country faces mounting pressure both domestically and internationally.

Facing downward pressure， Chinas policy arrangement prioritizes economic transformation. It aims to unleash the vigor of small and medium enterprises， boost domestic demand and bolster the quality of industrial chains through supply-side structural reform. Detailed policies fit into the following categories：

First， the government will make consistent policies for macro control. For the first time， the meeting promised not to use real estate as “a short-term means of stimulating the economy.” That statement represented a clear signal from the central government that they believe “houses are built to be inhabited， not for speculation.”

In fact， the real estate market has remained stable after slight price increases early this year. According to the National Bureau of Statistics， 757.86 million square meters of commercial housing were sold from January to June， a year-onyear decrease of 1.8 percent—0.2 percentage points higher than the rate of decrease from January to May. While real estate companies may face pressure， the reassurance to avoid real estate market stimulus is intended to maintain policy stability and build a mechanism conducive to the sound development of the real estate market for the long term.

Second， the meeting focused on the development of the real economy. Policymakers vowed to explore the potential of domestic demand and stabilize investment in the manufacturing industry. Without the real estate market available for short-term stimulus， increasing domestic demand and developing the real economy become imperative. So stabilizing financing for manufacturing will be key to guaranteeing investment. China has the largest manufacturing sector in the world， but its quality could still improve. To boost the development of the countrys manufacturing industry， the meeting formulated detailed policies that included： leveraging the rural market， making efforts to improve weak links such as renovating old communities in cities and towns， building more parking lots in cities and improving infrastructure for cold chain logistics， accelerating construction of new infrastructure such as information networks and stimulating consumption through a variety of methods.

It also vowed to promote supplyside structural reform of the financial sector. Financial institutions will be guided to provide mid- and long-term financing for manufacturing enterprises and private companies. The central government must handle risks carefully and ensure that financial institutions， local governments and financial regulatory bodies are clear about and take up their responsibilities. The end goal of supply-side structural reform in the financial sector is to lower financing costs for enterprises and remove obstacles of financing suffered by small and medium enterprises. Of course， this means that “drastic changes” in the financial sector will continue.

This meeting also noted that the sci-tech innovation board （STAR market） should play a key role in implementing a registration system with information transparency at its core and improving the quality of listed companies. The sci-tech innovation board is an “experimental field” for reforming the capital market. Development of the STAR market will be greatly beneficial to Chinas sci-tech innovation companies and inject more energy into Chinas economic growth.

Third， proactive fiscal policies and prudent monetary policies will be implemented. The meeting pointed out that fiscal policies should be more effective and policies to reduce taxes and administrative fees should be implemented properly and carefully. Chinas monetary policy should be neither too tight nor too loose， and liquidity should remain ample and be kept at an appropriate level.

In the future， greater emphasis will be placed on the effective implementation of those policies. Sufficient liquidity at an appropriate level hints that the monetary policy will be relatively eased， and low-cost capital is expected to flow into the real economy through targeted reductions of the required reserve ratio.

In general， the meeting focused on economic transformation. The measures proposed will be conducive to boosting high-quality economic growth of China.