Business / Economy

China's leaders focus on economic growth, risks

(Xinhua) Updated: 2015-08-01 13:34

BEIJING - China's top decision makers have prioritized addressing the nation's economic slowdown, while emphasizing risk prevention to try to steady the economy for the rest of the year.

The top leadership demanded the government pay "great attention" to combating the economy's downward pressure, and preventing and dissolving systemic risks, according to a statement released after a meeting of the Political Bureau of the Communist Party of China Central Committee, chaired by President Xi Jinping, on Thursday.

The meeting zeroed in on growth as authorities are wary of the grim prospects facing many companies, a lack of new drivers for the economy, and weakness in old drivers.

Economists said authorities have exercised caution despite the fact that growth remained stable in the second quarter at 7 percent and there have been tentative improvements in some economic indicators.

Xu Gao, chief economist at Everbright Securities, said authorities' directive on growth was due to their growing concern about economic risks in regions where companies face closure due to the sustained slowdown.

Since the start of the year, the situation has only worsened for industries such as coal and steel which face overcapacity. Government data showed over 70 percent of China's medium-sized and large coal companies suffered losses in the first half, with total losses at nearly $8 billion. Losses also widened to more than $3.5 billion for large and medium-sized steel companies during the same period.

"Meanwhile, significant growth dips in China's northeastern provinces and a decrease in the number of migrant workers searching for jobs in the first quarter are signs that growth could further slide if no action is taken to prop up growth," Xu said.

The top leadership pledged "effective measures" to nurture steady growth of consumption, investment and exports, key engines driving the economy.

They said the country "will maintain a proactive fiscal policy by expanding public spending, reducing companies' burdens and encouraging private investment, while keeping the prudent monetary policy elastic."

The political bureau did not specify what systemic risks the economy faces, but Xu Gao believes authorities' emphasis on risk prevention is largely a reaction to the recent stock market volatility.

A report released on Friday by a research unit of the Industrial and Commercial Bank of China (ICBC), the nation's biggest bank, also said that a volatile market due to speculation will have a negative impact on the real economy because capital is guided to the financial market instead of the real economy.

"Thursday's conference emphasized that fiscal and monetary policies will be aimed at serving the real economy. This is very important as the capital market can only prosper if the real economy is in strong shape," said Zhang Liqun, a researcher with the Development Research Center of the State Council.

Since the start of the year, policies including three rounds of cuts to both interest rates and banks' reserve requirement ratios, structural tax reductions, accelerated fiscal spending on infrastructure, and reduced downpayment requirements for home buyers have been rolled out to boost growth. Based on these, manufacturing activities have remained in expansion territory for four months since March.

Meanwhile, home sales in major cities are picking up and exports rebounded in June, rising 2.1 percent year on year.

Zhang said the global economy and the international market have shown glimmering signs of bottoming out, and the Chinese economy will operate steadily in the second half of 2015 on the back of recovering exports, growing infrastructure investment and consumption.

"Chinese policymakers just need to maintain the consistency and stability of macroeconomic policies," he said.

Complying with the top leadership's guidance on stabilizing growth, the National Development and Reform Commission promised a raft of major projects in connection with the nation's urbanization, regional development coordination, and global industrial cooperation in order to shore up investment.

But economists also suggest that officials need to look for fresh ways to boost the economy.

Peking University professor Huang Yiping said only when China finds new pillar industries as the government encourages mass entrepreneurship and more innovation can the country sustain its growth. He suggested the government needs to better protect intellectual property rights, quicken reform in the financial system and nurture a more skilled workforce.

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