China pledges 'necessary spending' to meet economic growth target (Image: Getty Images Signature/Canva Pro)
Chinese leaders vowed on Thursday to implement “necessary fiscal spending” to meet this year's economic growth target of around 5 percent, acknowledging new challenges and raising market expectations for further stimulus beyond measures announced this week.
The remarks, which included guidance to the government to support household spending and stabilize the troubled housing market, were made in an official readout at the monthly meeting of the Communist Party’s top officials, the Politburo. The September meeting is not typically a forum for macroeconomic discussions, suggesting growing anxiety about a slowdown in growth.
The world's second-largest economy faces strong deflationary pressures due to a sharp slump in the housing market and fragile consumer confidence, which have exposed its over-reliance on exports in an increasingly tense global trade environment.
A wide range of economic data in recent months has fallen short of forecasts, raising concerns among economists that the growth target is at risk and that a longer-term structural slowdown could be at stake.
“New situations and problems” require a sense of “responsibility and urgency,” state media reported, citing the Politburo meeting.
The central bank of China unveiled its most aggressive monetary easing since the pandemic on Tuesday, signaling cuts to a wide range of interest rates and a 1 trillion yuan ($140 billion) liquidity injection into the financial system, among other measures.
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Beijing is considering injecting up to 1 trillion yuan into its biggest state-owned banks to boost their ability to support the economy, mainly through issuing new special sovereign bonds, the Bloomberg News this Thursday.
Chinese real estate stocks jumped more than 8% and their peers Hong Kong rose 9% after the Politburo announcement, leading broad gains in the stock market. The yuan and Chinese bond yields also rose.
The Politburo said the government should “promote the stabilization of the real estate market,” expand a list of housing projects that can receive more financing and revitalize idle land, according to the readout of the meeting.
Authorities will “respond to people’s concerns, adjust housing purchase restriction policies, reduce existing mortgage rates, and improve land, fiscal, tax and financial policies as soon as possible to boost the new real estate development model,” he said.
The Politburo's endorsement of new stimulus “represents a strategic shift in macroeconomic policy from piecemeal policies to a highly orchestrated package in the right direction,” said Bruce Pang, chief China economist at Jones Lang LaSalle.
“A surge in government spending will likely be enough to drive a turnaround in business confidence, market sentiment and economic activity, helping China reach trend potential growth.”
China will make good use of its ultra-long sovereign special bonds and local government special bonds to support government investment, the Politburo vowed. It pledged to increase incomes for low- and middle-income groups and support consumption.