China’s Politburo pledges support, sending stronger-than-expected signal to boost economy

China has vowed to step up macro policies and stabilise market confidence to ensure it achieves leaderships’ full-year economic growth goal as the economy faces “increasing negative influence” from the outside world and insufficient demand at home.

The top leadership signalled more support for emerging sectors, vowed to unleash more domestic demand, and warned against “vicious competition” among local companies, according to a meeting on Tuesday of the Chinese Communist Party’s 24-member Politburo, the party’s top decision-making body led by President Xi Jinping.

Emphasising that “the task of reform and development in the second half of the year is tough”, officials acknowledged signs of divergence among different sectors and regions, and that there were still “relatively high risks in key areas”, including the housing market.

The world’s second-largest economy witnessed a 5 per cent year-on-year increase in GDP in the first half of the year. But momentum took a hit in the second quarter as year-on-year growth slowed to 4.7 per cent, with quarter-on-quarter growth at 0.7 per cent, official figures showed.

Vowing to boost investor confidence, the government intends to increase purchases of homes to be used as affordable housing as a way to absorb housing inventories.

It also asked for industry “self-discipline” in light of growing competition among local companies in certain industries, such as the electric vehicle sector.

“[We should] strengthen the market’s ‘survival of the fittest’ mechanism and smooth the exit channels for backward and inefficient production capacity,” it said.

Ding Shuang, chief economist for Greater China at Standard Chartered, said an important message from the Politburo meeting is “reserve early and launch a batch of incremental policy measures in a timely manner”.

There is a lot of room in the second half of the year for fiscal stimulus, which was weaker than expected in the first half, and tools could include more special bonds and ultra-long-term treasury bonds, he added.

“Launching incremental policies means it may exceed the current budget,” Ding said. “Of course, whether they will be launched will depend on how far is it from achieving the annual growth target.”