(Photo: VCG)

China will continue to implement a proactive fiscal policy and prudent monetary policy for the second half (H2) of 2018, according to a Tuesday meeting of the Political Bureau of the Central Committee of the Communist Party of China.

The meeting was held to set the direction of China’s economic work in the second half of 2018 amid complex economic changes in and outside the country.

Presided over by Xi Jinping, general secretary of the CPC Central Committee, the meeting came to a decision that China will continue seeking progress while maintaining stability in its economic development. 

Top leaders at the meeting agreed the focus in H2 should be on three major issues: preventing and resolving major risks, eliminating poverty, and preventing pollution. 

External and internal economic changes

Top leaders at the meeting said China has continued to open up and the economy remained stable in the first half of the year. But they also pointed out the country faces new challenges, with changes in the global economy. 

It to some extents, hinted that the Chinese government should prepare for the worsening economic situation in China both internally and externally, according to Hu Yuwei, research fellow and head of the macro research department at China Institute of Finance and Capital Markets.

The external reason may refer to the current China-US trade tensions. “Unfortunately, so far we haven’t seen any major ease between both parties. So that’s something we have to be prepared,” Hu said.

As to the  internal factors, declining domestic consumption should be on their radar, Hu warned, adding that “consumption has been playing an increasing positive role in stimulating China’s economy. However, over the past few months, we have seen the declining role of consumption in China. So that’s something we also have to be prepared for."

Addressing challenges

Six major tasks are to be addressed to tackle external and internal challenges: implementing proactive fiscal and monetary policies, deepening supply-side structural reform, addressing financial risks, deepening the reform and opening-up policy, curbing home prices, and improving people's livelihood and ensuring social stability.

The country will continue to implement a proactive fiscal policy and prudent monetary policy. Fiscal policy should play a bigger role in expanding domestic demand and structural adjustments. China will control monetary supply and keep liquidity at a reasonable level. The country will continue to protect the legitimate rights of foreign-funded companies in China.

Deepening supply-side structural reforms continues to be a focus. To cultivate new growth drivers, intensified efforts will be made in improving infrastructure and innovation capability. The government will also try to further lower the cost for companies and revitalize the country's vast rural areas.

The government says it will work to defuse any financial risk, to better help the development of the real economy. 

The meeting reiterated the importance of deepening the reform and opening-up policy, and further implementation of the Belt and Road Initiative. 

The leadership called for a continuous firm curb of home prices and the establishment of a long-term mechanism, to ensure the stable and healthy development of the property market.

The meeting pledged to effectively improve people's lives and ensure social stability by adding more jobs, increasing people's salaries and improving education and social security.

Deleverage

Li Yong, a senior fellow at the China Association of International Trade, explained that the decisions from the meeting would ensure the liquidity of market, relieving the burden of growth, improving the efficiency and effectiveness of economy as well as minimizing the negative effects of external factors.

Moreover, policymakers want to balance the pace and intensity of China's deleveraging process. And Li indicated that the volume of debt should not be the key focus during the deleveraging process. Instead, he stressed on the financing step for small and micro size enterprises. 

“Actually, the focus is on whether the leverage can really be the channel to some of the small and micro enterprises, and to support the growth of the real economy. The real economy is going to ensure the stability in employment, investment, and the robust growth of economy. So I think the focus will be on the financing of these small and micro enterprises,” Li explained.