China is putting its economy back on track



Now that the 20th National Congress of the Chinese Communist Party and Chinese People’s Political Consultative Conference have concluded in Beijing with a lot of fanfare, the necessary decisions to boost the economy have been taken. These include spelling out the government’s economic priorities, plans for reforming the administrative structure and changes to leadership.To get more china business market news, you can visit shine news official website.

This is a welcome confidence boost for China and the world economy. It comes after a dismal economic performance in 2022, zero Covid-19 policy, regulatory crackdown and ideological orientation set during the Congress. It shows that the Chinese leadership has put the welfare of the people above everything else. It was clearly stated that domestic demand, private consumption and employment are top priorities.

While the service sector has picked up since the end of the zero Covid-19 policy, other components are facing headwinds. Private consumption is one such area as households and small- and medium-sized enterprises reduced their savings cushion during zero covid-19. Income and employment have not picked up either.

Private investment remains cautious until stronger measures to support private business become apparent. Confidence plummeted last year following repeated lockdowns and the fallout from unpredictable regulatory crackdowns on sectors such as education, entertainment, internet platforms and real estate. It appears that private investors are sitting on the fence.

Government-funded infrastructure investment is likely to slow. Fiscal support will be restrained, with the target for headline deficit based on a narrow definition of government revenue and spending raised only slightly to 3% of gross domestic product. Local governments are likely to scale back major investments, with a smaller quota for special local bonds used mainly to finance infrastructure projects. Many local governments have reached their debt levels after years of overspending as income from real estate allocation shows no sign of revival.

Money supply will not follow the quantitative easing of western central banks, but will be ready to support worthwhile projects. However, the increasing need to expand M2 to achieve envisaged growth targets, which has been observed in recent years, is not sustainable.

Another uncertain growth component is the foreign sector with exports and imports declining at the beginning of 2023. This depends on world demand and geopolitical developments which are beyond the control of China. There are now signs that trade tensions will not disappear any time soon.

Science and technology were second on the list of government priorities, with officials aiming to coordinate business to achieve breakthroughs in core technology to boost self-reliance and self-strengthening. The government has earmarked vast amounts of money to subsidise the purchase of domestically produced chipmaking equipment. This outlay is in response to the US increasingly tightening curbs on the export of chipmaking technology, which might be used for artificial intelligence and military purposes.

The planned reform of the administrative structure includes the establishment of a national data centre as well as an overarching financial supervisory authority, comprising banking and insurance but also non-bank financial business – a source of financial instability. Small- and medium-sized banks in particular have become a source of risk. However, reorganising government structures to eliminate financial risk is futile as risk has to be managed rather than eliminated. Risk management starts with each financial player.