China pledges ‘necessary spending’ to hit economic growth target By Reuters

By Ellen Zhang and Marius Zaharia

BEIJING/HONG KONG (Reuters) – Chinese leaders pledged on Thursday to carry out “necessary fiscal spending” to meet the economic growth target of around 5 percent this year, acknowledging new challenges and raising market expectations for fresh stimulus in addition to measures announced this week.

The remarks came in an official reading of a monthly meeting of top Communist Party Politburo officials. The September meeting is not typically a forum for macroeconomic discussions, suggesting growing anxiety over slowing economic growth.

The world’s second-largest economy is facing strong deflationary pressures due to a sharp decline in the housing market and fragile consumer confidence, which has exposed its over-reliance on exports in an increasingly strained global trade environment.

A wide range of economic data in recent months have missed forecasts, raising concerns among economists that the growth target was at risk and that a longer-term structural slowdown could be in play.

“New situations and problems” called for a sense of “responsibility and urgency,” state media reported, citing the meeting.

The Politburo’s pledges come days after the central bank unveiled its most aggressive set of monetary easing measures since the pandemic, signaling cuts to a wide range of interest rates and a 1 trillion yuan liquidity injection in the financial system, among other steps.

Separately, Bloomberg News reported Thursday that China is also considering injecting up to 1 trillion yuan of capital into its biggest state-owned banks to boost its ability to support the ailing economy, primarily by issuing new special sovereign bonds.

Chinese property shares rose more than 8 percent on the news, and their Hong Kong peers jumped 9 percent, leading broader stock market gains. Yuan and Chinese bond yields also rose.

The Politburo’s support for additional stimulus “represents a strategic shift in macro policy from piecemeal policies to a highly orchestrated package in the right direction,” said Bruce Pang, chief China economist at Jones Lang LaSalle.

“An increase in government spending is likely to be enough to generate a shift in business confidence, market sentiment and economic activity, helping China catch up with the potential upward trend.”

The country will make good use of its ultra-long special sovereign bonds and local government special bonds to support government investment, the Politburo promised. It also pledged to raise incomes for low- and middle-income groups and support consumption, as well as improve birth support policies.

“Falling inflation and the deleveraging of the private sector means that interest rate cuts alone will not dramatically boost domestic demand,” said Capital Economics analyst Julian Evans-Pritchard.

“To do so would require more substantial fiscal support. There are some indications of this in the communiqué”.

The policy is needed to stop the downturn in the housing market, while the construction of new commercial homes should be “strictly controlled”, according to the meeting.

China would respond to people’s concerns, adjust housing restriction policies and lower existing mortgage rates to promote the construction of a new real estate development model.

As central bank governor Pan Gongsheng signaled on Tuesday, top policymakers said China would lower its reserve requirement ratio and implement “forced” interest rate cuts.

As is typical for politburo meetings, no specific steps were announced and there were no details on the size of the additional stimulus in the works.

Officials reiterated a commitment to introduce legislation to support the private sector, without saying when the legislation would appear.