Since the beginning of 2022, facing the complex and severe international environment and the arduous domestic tasks of reform, development and stability, the Chinese government has effectively coordinated the work of preventing and controlling the COVID-19 epidemic. with the economic and social development of the country. .
“More effective measures should be taken to achieve the maximum effect in prevention and control with minimum cost, and to reduce the impact on economic and social development as much as possible,” Chinese President Xi Jinping said during a meeting. a meeting of the Standing Committee of the Political Council. Office of the CPC Central Committee in March.
Shanghai and Beijing, China’s two major super cities, have been hit by the epidemic, which has had a negative impact on the Chinese economy. Under such circumstances, the Chinese economy still recorded positive growth in the second quarter, which fully demonstrates the resilience, potential and vitality of the Chinese economy.
As we enter the second half of the year, the external environment is full of uncertainty. The conflict between Russia and Ukraine continues to impact energy and food supplies, increasing the risk of global stagflation. Monetary policy in the United States and other major economies is still tight, and volatility in global financial markets could increase. China will face contagion risks such as weakening foreign demand, turmoil in global financial markets and geopolitical conflicts.
Domestic demand will become the key to stabilizing the macroeconomic situation. From the perspective of national development, the Chinese market is large, the industrial and supply chains are complete, and scientific and technological innovation is developing rapidly. The long-term economic fundamentals of development have not changed. The short-term economic pressure comes mainly from the impact of non-economic factors.
Although the growth rate of gross domestic product (GDP) in the second quarter declined significantly, affecting the achievement of the growth target of around 5.5% at the beginning of the year, the stable economic functioning of China rests on a solid foundation. Its consumer price index (CPI) is within the desirable range, the employment situation is generally stable, the budget deficit rate is relatively low, monetary policy is prudent and there is ample room for macro policies.
With the optimization of the coronavirus disease prevention policy, a series of economic stabilization policies will gradually come into effect, and market expectations and confidence will continue to recover. The Chinese economy is expected to recover quarter by quarter in the second half of the year, but there are challenges such as difficulties in epidemic prevention and control, insufficient market demand and low expectations of market players.
In the second half of the year, consumption should recover gradually assuming that the epidemic is manageable. The easing of the epidemic situation will also create the conditions for the resumption of offline consumption such as accommodation, catering, culture and leisure. Various consumption promotion activities are held in many places, and consumption coupons for energy-saving and electronic products are issued.
Automobile consumption is expected to gradually warm up on the back of stimulus measures and the resumption of the industrial chain. The policy of reducing the purchase tax on vehicles by half will strongly stimulate the recovery of automobile consumption. In addition, the current credit financing environment for residents is relatively flexible. With the financial support, residents’ buying ability for automobiles will be improved.
Fiscal policy will continue to accelerate the recovery of infrastructure investment. In the second half of the year, infrastructure investment should be an important driver of stable growth.
The effects of the real estate market stabilization policy should gradually appear. Therefore, real estate investment will be improved. Real estate regulatory policy is still being eased and it is expected that there will still be room for a downward adjustment in the mortgage interest rate. The real estate market will gradually warm up in the second half.
In the short term, the policy of stabilizing foreign trade, the devaluation of the RMB exchange rate and the continued recovery of production and supply chains are conducive to the growth of Chinese exports. However, China’s export growth will still be under pressure in the future, and it may fall due to a gradual decline in foreign demand.
In addition, exports from other export-oriented economies are growing rapidly, and some Chinese industries are facing the transfer of export orders. Vietnam and other Southeast Asian countries have some competitiveness in labor-intensive industries such as the manufacturing of textiles, footwear, and electronic equipment.
Some Chinese foreign trade orders have flowed to Southeast Asia due to rising costs and the epidemic. High commodity prices will squeeze the profit space of foreign trade enterprises. However, China’s foreign trade showed great resilience in the first seven months and we are confident in its performance in the second half.
It is imperative that the Chinese government put in place more powerful, precise and effective policies to stabilize growth. The central bank should help financial institutions conduct consumer credit business through interest rebates.
Consumption should be encouraged by appropriate government subsidies and financial institutions to provide low-interest or interest-free consumer credit. On fiscal policy, in addition to pursuing tax cuts and fee reductions to lower the costs of small and micro businesses, central and local governments should increase infrastructure investment to increase domestic demand.