Zhang Chi You Dao: Interpretation of the July Central Politburo Meeting (AI Translation)

张弛有道：7月中央政治局会议解读

The Political Bureau of the Communist Party of China's Central Committee convened on July 30 to evaluate the current economic state, devise strategies for economic work in the latter half of the year, and review regulations aimed at mitigating bureaucratic burdens at the grassroots level [para. 1].

The meeting emphasized the need for a proactive macroeconomic policy while maintaining strategic steadfastness. Key issues identified in the current economic climate include adverse effects from changes in the external environment, limited domestic effective demand, bifurcation in economic performance, potential risks in critical sectors, and the transitional pains between old and new economic drivers [para. 1]. Despite these challenges, the gathering called for optimism about China's economic outlook, stressing the importance of continued economic restructuring and risk prevention.

The second quarter of the year saw a slowdown in economic growth, with actual GDP growth falling short of the annual 5% target. The Politburo highlighted the necessity to stabilize growth in the second half of the year by expediting already confirmed policies and introducing new measures to instill market confidence [para. 2]. The potential escalation of Sino-U.S. trade conflicts was identified as a significant risk, necessitating preparedness for incremental policy measures [para. 2].

Fiscal policy is expected to become more proactive, particularly in accelerating the issuance and use of special bonds, promoting large-scale equipment upgrades, and optimizing the structure of fiscal expenditures to ensure basic livelihood needs are met [para. 3]. Recently, approximately 300 billion yuan in ultra-long-term special treasury bonds was allocated, with significant portions directed at equipment upgrades and the trade-in of major durable goods [para. 3].

In terms of monetary policy, while explicit proposals like reserve requirement ratio (RRR) cuts or interest rate cuts were not mentioned, the meeting hinted at future domestic monetary easing. A reserve requirement ratio cut and possible further interest rate cuts are anticipated, with the stability of the yuan exchange rate being a crucial factor [para. 4].

Reform and opening up were emphasized, with the Third Plenary Session’s decision proposing over 300 significant reform initiatives to be completed by 2029. Measures to attract foreign direct investment (FDI) were specifically highlighted, including the elimination of foreign investment restrictions in the manufacturing sector and expanding the opening up of the service industry [para. 5]. These steps are deemed necessary to stabilize China's cross-border financial flows and the renminbi exchange rate [para. 5].

Risk prevention remains a core concern, targeting real estate and local government debt. Real estate policy aims to reduce existing inventory while optimizing new supply, ensuring property deliveries. July figures showed inconsistencies in real estate sales, emphasizing the need for faster and stronger destocking policies. Concerning local government debt, accelerated resolution of local financing platform debt risks was suggested to stabilize municipal investment bonds [para. 6].

The conference underscored boosting domestic demand, especially through promoting consumption, with an emphasis on service consumption. Service consumption, which has significant potential, saw year-on-year growth in per capita expenditure. Policies to stimulate service consumption are seen as critical for economic growth in the second half of 2024 [para. 7].

Lastly, the meeting highlighted support for the development of Gazelle and Unicorn companies, aiming to set benchmarks for supporting venture capital. China and the U.S. host numerous unicorns and gazelle companies, and enhanced IPO and investment support for these firms were suggested. Additionally, the need to avoid unhealthy competition and facilitate the exit of inefficient capacities in the industry was discussed, aiming to stabilize corporate profitability [para. 8].