Experts call for new round of stimulus

Workers assemble wind turbine wheels at a factory in Lianyungang Economic and Technological Development Zone, East China's Jiangsu province, Feb 28, 2023. [Photo by Geng Yuhe/for China Daily]

It is now the right time for China to roll out a new round of economic stimulus, with private investment a key focus, as faltering recovery momentum has intensified employment pressures while the United States has paused interest rate hikes, experts said on Thursday.

"The Chinese economy is feeling the pressures from both the domestic and external sides. … Policy support should be strengthened to stabilize market confidence," said Gong Liutang, a member of the 14th National Committee of the Chinese People's Political Consultative Conference, the country's top political advisory body.

Gong, who is also a professor of applied economics at Peking University's Guanghua School of Management, said the US Federal Reserve's decision on Wednesday to keep interest rates steady could help mitigate the US-China interest rate difference and provide an opportunity for China to ease its monetary policy and further reduce interest rates.

The People's Bank of China, the nation's central bank, cut the interest rate of the medium-term lending facility operations — a key interest rate bench mark — by 10 basis points to 2.65 percent on Thursday, shortly before China reported the major economic indicators for May that pointed to faltering recovery momentum.

Year-on-year growth in fixed-asset investment, industrial output and retail sales all slowed from the previous month, leading some analysts to downgrade their forecasts for China's full-year economic growth from more than 5.5 percent to above 5 percent. The country has set this year's growth target at around 5 percent.

Further monetary and fiscal policy stimulus has therefore become more urgent to ensure that the annual growth target is achieved, said experts. They particularly called for support for the private sector, which accounts for more than 80 percent of China's urban employment.

Fixed-asset investment by the private sector edged down 0.1 percent year-on-year in the first five months of the year, compared with 0.4 percent growth a month earlier and marking the first negative reading since October 2020, the National Bureau of Statistics said.

Youth unemployment worsened as private investment lost momentum, with the surveyed jobless rate of the population, age 16 to 24, rising to 20.8 percent in May compared with 20.4 percent in April, according to the NBS.

"Policy measures to stabilize the private economy should be rolled out as soon as possible. They must be strong enough so that entrepreneurs' confidence can be anchored," said Charlie Zheng, chief economist at Samoyed Cloud Technology Group Holdings.

Wu Chaoming, deputy director of the Chasing International Economic Institute, said that necessary efforts may include easing the investment entry barriers facing private businesses and lowering the interest rates of loans to them in a targeted manner.

In an indication of policymakers' willingness to amplify macroeconomic support, Yi Gang, governor of the central bank, pledged to "strengthen cross-cyclical adjustments" — which usually points to an easing policy cycle — during a visit to Shanghai last week, after the central bank had avoided using this wording for a while.

As coordinated policy efforts filter through, China's economic recovery is expected to further accelerate in the second half of the year, according to experts and executives.

"I am optimistic about China's economic growth and progress in high-quality development this year," said Helen Brand, chief executive of the Association of Chartered Certified Accountants.

China's huge consumer market and rapidly growing technology industry are expected to underpin the country's long-term growth potential, Brand said.