Economists see the need for more stimulus in China’s economy

BEIJING: Chinese industrial firms’ smaller first-quarter profits have raised concerns over their uneven recovery and heightened the need for additional stimulus measures to reignite demand and address structural issues, economists say.

They added that policymakers should take targeted measures aimed at bolstering consumer spending, incentivising investment and addressing imbalances within the property market.

Looking ahead, the Chinese economy is likely to return to healthy growth by the end of this year, if pivotal problems in real estate, local government debt and consumption are well addressed, they said.

Their comments came after data from the National Bureau of Statistics (NBS) showed last Saturday that industrial enterprises with an annual revenue of at least 20 million yuan (US$2.8mil) each saw their total profits increase 4.3% year-on-year in the first quarter, after a 10.2% rise in the first two months.

Profits in March, however, fell 3.5% year-on-year.

Yu Weining, an NBS statistician, said the latest data showed the recovery foundation is not yet solid.

More efforts will be made to encourage a new round of large-scale equipment renewal and trade-in deals for old consumer goods, expanding domestic demand and boosting market confidence, Yu said.

“The latest profit data indicate pressures from insufficient demand and weakening expectations,” said Xiong Yuan, chief economist at Guosheng Securities.

Xiong noted that profits improved significantly in March in sectors related to exports and external demand such as chemical fibres, nonferrous metal smelting and telecommunication electronics.

At the same time, profits plummeted or reported smaller gains in sectors related to real estate and domestic demand, like ferrous metal smelting, nonmetallic mineral products, furniture manufacturing, textiles and apparel, and nonmetallic mining.

Robin Xing, chief China economist at Morgan Stanley, said while exports will remain a primary positive factor in China’s growth story this year given the rebound in global demand, especially demand in the United States, the broader economy is still facing pressure from insufficient domestic demand, lacklustre consumer sentiment and weakness in the property sector.

“It is advisable for policymakers to increase financial spending in fields such as healthcare, education and the social security system, which will help restore consumer confidence and further unleash their consumption potential.”

Li Daokui, director of Tsinghua University’s Academic Centre for Chinese Economic Practice and Thinking, said in an exclusive interview with China Daily the current situation in China can be traced to the economy “operating below its potential growth speed”, thus leading to subdued market demand and subdued expectations from both companies and citizens.

“To relieve the problem, real estate problems must be alleviated.

“The authorities should work at a fast pace, just like they did during the global financial crisis of 2008-09, to help developers deal with financial shortages, including by offering sufficient loans,” said Li, who is also editor-in-chief of The Journal of Government and Economics.

He called for a “complete lifting” of house purchase restrictions across the country, barring only a few top-tier cities with limited housing supply, so as to unleash housing demand.

Li also said that many local governments have engaged in large-scale construction over the past decade or two and borrowed a significant amount of money.

“The central government can extend debt repayments to 50, 60 or even 70 years and set a lower interest rate.

“If the burden on local governments cannot be lightened, our economic vitality will not recover.”

The China Council for the Promotion of International Trade said it surveyed 600-odd foreign companies operating in China in the first quarter and found more than 70% of them were optimistic about development prospects in the Chinese market over the next five years, in spite of uncertainties and challenges ahead.

The figure was up by 3.8 percentage points quarter-on-quarter, according to a survey report released last Sunday.

The study found more than half of the respondents believe that the attractiveness of the Chinese market is increasing, a rise of about 2.9 percentage points compared to the previous quarter. — China Daily/ANN