China economy, coronavirus and trade war on agenda for Xi Jinping at top-level Politburo meeting

Analysts say big policy changes are unlikely as China recovers from the coronavirus, while bracing for gathering storm in international affairs
China is expected to maintain a zero-tolerance policy for coronavirus infections while sticking to a relatively easy monetary policy

China economy

Frank Tangin Beijing

Published: 6:00am, 23 Jul, 2020

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A meeting of China’s top decision-making body, scheduled for the end of this month, will be closely watched by economists and analysts keen on sussing out signals from the top Chinese leadership over what Beijing will do next, after the nation saw surprising economic growth in the second quarter.

At the mid-year meeting of the 25-member Politburo of the ruling Communist Party, President Xi Jinping is expected to set the tone for future economic policies in the second half of the year and even beyond.

The Politburo has a tradition of hosting the meeting in the last week of July, when it reviews the country’s economic performance in the first half of the year and sets priorities for the coming months.

A heavily edited statement is then published, and the guidelines are articulated into specific economic policies. At the meeting in July 2018, for instance, Xi made a significant policy shift to focus on economic “stabilisation” as Beijing braced for turbulence after US President Donald Trump started a trade war against China.

At next week’s Politburo meeting, President Xi Jinping (centre) is expected to set the tone for China’s upcoming economic policies. Photo: Xinhua

Analysts say the upcoming meeting is worth watching as China again faces a relatively rosy situation at home and a gathering storm abroad.

On one hand, China has achieved an initial victory in pulling its economy out of the coronavirus doldrums – becoming the world’s first major economy to declare positive growth in the second quarter. But on the other hand, China’s relationship with the United States has sunk to new lows, with confrontations intensifying on all fronts, from the origin of Covid-19 to the national security law in Hong Kong. Beijing’s ties with London, Canberra and Ottawa are souring as well, with talk among Chinese scholars about what China could do to de-escalate tensions.

The general expectation for the Politburo meeting is that Beijing will maintain a domestic policy mix of keeping a zero tolerance for coronavirus infections while sticking to a relatively easy monetary policy and a proactive fiscal policy, instead of an all-out stimulus plan. It will also try to map out more specific measures to help vulnerable groups, according to analysts.

There won’t be significant policy changes because the recovery is already on track

Liu Xuezhi

Liu Xuezhi, a senior researcher with the Financial Research Centre at the Bank of Communications, the country’s fifth-largest lender, said the Politburo meeting could “roll out more targeted measures to support the real economy” on the domestic front.

“There won’t be significant policy changes because the recovery is already on track. The second-half growth is projected at 6 per cent, while full-year growth is at around 2 per cent,” Liu said.

Xi said at a symposium with Chinese corporate executives on Tuesday that the government would enhance its policy support for businesses. Xi said Beijing would find ways to help the country’s struggling family-run shops, and thereby about 200 million jobs across the country.

Compared with relative certainty in its domestic policy, Beijing’s leeway in managing the external environment is limited. Xi said on Tuesday that China’s answer to a changing and hostile world is to “get our own things done”, suggesting an inward-looking approach.

Veteran Chinese economy watcher Shen Jianguang said China now faces growing hostility from the US, and a reversal of “the good atmosphere brought forward by the phase one trade deal”, referring to the truce signed by Beijing and Washington in January.

“Post-pandemic relations will certainly be rewritten,” he wrote in a note, pointing to examples such as Washington enacting the Hong Kong Autonomy Act and threatening to delist Chinese companies from US exchanges. Shen is the chief economist at JD Digits, the fintech subsidiary of Chinese online marketplace JD.com.

China certainly doesn’t want to be decoupled from the US. But wisdom is needed to sort out previously accumulated problems

Ding Shuang

Ding Shuang, chief Greater China economist at Standard Chartered Bank, said decision-makers will have to deal with a far more complex international environment, which could curtail the country’s long-term development path.

“China certainly doesn’t want to be decoupled from the US. But wisdom is needed to sort out previously accumulated problems,” Ding said.

For Chinese leaders, meanwhile, China can remain a bright spot in the global economy, and therefore maintain its role in global value chains as long as the country can deliver growth better than others. This confidence was further cemented by a 3.2 per cent growth in the second quarter – a sharp rebound from a contraction of 6.8 per cent in the first quarter.

Liu Shijin, former deputy head of the Development Research Centre of the State Council, said China’s second-half GDP growth could return to 6 per cent. And Yao Jingyuan, former chief economist at the National Bureau of Statistics, said full-year growth of 3 per cent was almost guaranteed.

Xi also said on Tuesday that China’s economic situation “is better than expected”.

Wen Bin, chief analyst at China Minsheng Banking Corp in Beijing, said the authorities should improve their macro-control measures to increase domestic demand amid international uncertainties.

“It’s not just about stimulating demand, but also restructuring and opening up to invigorate markets,” he said.

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