China urged to take immediate action to halt economic downward spiral, propping up ‘effective demand’ key
- Economists hit back against ‘bit by bit’ policy implementation and warned that economic cooling would be detrimental for the nation
- Propping up demand is key, while direct subsidies should also be distributed to consumers, top economists said
China needs a new playbook with resolute actions and clear signals to stem the downward spiral and reverse pessimism within the private sector, top economists said.
Beijing needs to “immediately” stop China’s economy from going into a downward spiral by implementing stronger measures that prop up “effective demand”, said Yin Yanlin, deputy director of the economic affairs committee of China’s national political advisory body.
“The key is to prop up overall demand,” Yin said.
“Problems with unemployment, inflation, economic growth and risk defusing all depend on a rebound in domestic demand,” he told an economic forum hosted by Tsinghua University on Saturday.
[The government] should be firm on launching strengthened policies, instead of making adjustments bit by bit
Yin stepped back from his role as deputy director of the office of the Central Financial and Economic Affairs Commission – a key economic decision-making body- and joined the Chinese People’s Political Consultative Conference’s economic committee in March.
He described the Chinese economy as “obviously losing momentum” and facing “increasing risk”, and that it is “far away from” Beijing’s goal of seeing “an upturn”.
Yin said the government needs to adopt a stern attitude to cut negative circulation in the economy and correct outdated policies.
“[The government] should be firm on launching strengthened policies, instead of making adjustments bit by bit,” he added.
“A few landmark policies should be introduced to boost private investors and businessmen’s confidence … ones that would have a substantial impact on addressing fair competition and legal challenges they currently face.”
Li Daokui, director of Tsinghua University’s Academic Centre for Chinese Economic Practice and Thinking, also said that direct subsidies should be distributed to consumers.
The former central bank adviser said the subsidies could create a multiplying effect that would not only boost overall spending, but also create government revenue through taxes.
“In the end, [this policy] would not even cost government expenditure. So why are we not launching such a good policy? Why are we still discussing it? I am also confused,” Li said.
He added that the government needs to give private investors confidence to invest through establishing a “clear political position” that reassures them that their contributions to the fundamentals of the Chinese economy are the same as state enterprises.
If the economy continues to cool for a long term, the unemployment problem is going to get more serious, which would be a challenge to the stability in the society
Li urged for policies to be taken “immediately” as there could be a wider impact for the country.
“If the economy continues to cool for a long term, the unemployment problem is going to get more serious, which would be a challenge to the stability in the society … the country’s international influence, including our military capability would also slow down, the trend of us overtaking the world’s most advanced economies could even be overturned. This, I am afraid, is a fundamental long-term risk,” he said.
Expectations are growing for Beijing to step up and introduce more stimulus as China’s economy showed further signs of waning from its better-than-expected results in the first quarter after it ended three years of zero-Covid controls.
Inflows of foreign direct investment also dropped by 5.6 per cent in the first five months of the year.
Investment banks, including UBS, Standard Chartered, Bank of America, JPMorgan and Nomura, have cut forecasts for China’s 2023 gross domestic product growth to between 5.1 and 5.7 per cent, down from an earlier range of 5.5 to 6.3 per cent.
