China vows increased economic support, signals flexible policy use

China economic support: China pledges to enhance economic support through prudent monetary and proactive fiscal policies, including adjustments in interest rates and bank reserve requirements, stated the Politburo of the Communist Party, as reported by state media on Tuesday.

The nation's top decision-making body, chaired by President Xi Jinping, convened to address the current economic landscape, acknowledging both progress and challenges. Despite a faster-than-expected growth rate in the first quarter, the economy still confronts issues such as insufficient demand, pressures on businesses, and risks across key sectors.

While highlighting the stability and resilience of China's economic foundation, the Politburo underscored the necessity for adaptive policies. This approach reflects the government's intent to navigate complexities both domestically and internationally, especially amid the upcoming central committee plenum in July, focusing on reforms amidst prevailing challenges.

With a 2024 economic growth target of around 5 per cent, the Politburo's commitment to further stimulus measures becomes paramount. The recent slowdown in manufacturing and services activity underscores the need for proactive intervention to sustain growth momentum.

"We need to flexibly use policy tools such as interest rates and reserve requirement ratios, increase support for the real economy, and reduce the overall cost of social financing," the Politburo stressed.

Analysts anticipate potential interest rate and reserve requirement ratio cuts in the second quarter to bolster economic expansion. Beijing's strategic shift towards infrastructure investment and high-tech manufacturing aims to counterbalance tepid domestic demand and address the ongoing property crisis.

In line with these objectives, China plans to issue special ultra-long-term treasury bonds worth 1 trillion yuan ($138.14 billion) to support key sectors. Additionally, efforts will focus on reducing housing inventories and optimising policies for new housing, potentially allowing local governments to purchase commercial properties and convert them into affordable housing units.

The resolve to develop "new productive forces" aligns with President Xi's vision of fostering innovation-driven economic growth. This strategic emphasis underscores China's commitment to advancing in advanced sectors and adapting to evolving global economic dynamics.

Shares of Chinese property developers have surged amid speculation of forthcoming stimulus measures to alleviate the housing glut. This momentum reflects market optimism towards the anticipated policy adjustments aimed at revitalising the property market and sustaining economic growth.

(With Reuters inputs.)