Beijing strives to boost China’s private economy and spur domestic consumption

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China’s top economic and financial news stories for the week ending 21 July, 2023.

The Chinese central government has unveiled measures to support private enterprise and consumption, as the economy continues to recover from the impacts of the Covid pandemic. These include a push for financial institutions to strengthen lending to households for consumption of home furnishings and renovation upgrades. 

Chinese economists continue to fret over local government debt, with calls to reduce outstanding debt levels in tandem with debt costs.

The latest round of medium-term lending facility (MLF) operations conducted by the Chinese central bank could portend reductions to the benchmark interest rate (the loan prime rate or LPR) in the third quarter.

China’s national budgetary revenues for the first half of 2023 increased 13.3% YoY, with tax revenues posting a 16.5% increase.

CPC Central Committee and the State Council release opinions on expediting the development and strengthening of the private economy (Shanghai Securities Journal

The “Opinions of the Central Committee of the Communist Party of China and the State Council on Promoting the Development and Growth of the Private Economy” was released on 19 July, outlining 31 policies to support the development of the private economy.

The “Opinions” calls for adhering to the “two unwaverings”, accelerating the creation of a market-oriented, law-based, and international first-class business environment; optimizing the environment for the development of the private economy, protecting the property rights of private enterprises and the rights and interests of entrepreneurs in accordance with the law, and comprehensively building close and clean relations between government and business. 

This can enable enterprises of all ownership types to make equal use factors of production in accordance with the law, participate in market competition fairly, and enjoy equal protection under the law. 

[It can] guide private enterprises to continuously improve the quality of growth through their own reform and development, compliant operations, transformation and upgrade, and spur private economy to become bigger, better and stronger. 

The “Opinions” require the development of a high-level socialist market economic system, continuously optimizing a stable, fair, transparent and predictable development environment, and fully stimulating the vitality of the private economy.

NDRC makes haste to formulate policies to restore and expand consumption (Shichang Zixun

At a press conference held on 18 July, Li Hui, deputy director of the National Economic Comprehensive Department of the National Development Reform Commission (NDRC), said that it would introduce relevant policy measures as soon as possible to promote the steady recovery and expansion of consumption, with a focus on expanding the space for effective investment, accelerating the development of a modern industrial system supported by the real economy, and helping business entities to recover and gain a firm foothold.

Li Hui said that looking back at the economic performance in the first half of the year, China achieved a good start in the first quarter and continued to recover in the second quarter. 

We must also note that the world’s political and economic situation is complex, the global economy is facing greater downward pressure, and there are many unstable and uncertain factors, bringing multiple impacts for China’s development. At the same time, domestic economic development is also facing risks and challenges, and the foundations are not yet firm. 

It is even more important to see that China’s economy has strong resilience, great potential, and sufficient vitality. The fundamentals of long-term improvement have not changed, and positive factors that promote overall economic improvement are constantly accumulating.

Ministry of Commerce issues directive encouraging financial institutions to strengthen support for home consumption loans (China News Service

(18 July) According to the website of the Ministry of Commerce, 13 departments including the Ministry of Commerce recently issued a notice on several measures to promote home furnishing and renovation consumption.

The notice states that financial institutions are encouraged to strengthen credit support for home furnishing and renovation consumption on the precondition of compliance with laws and regulations and controllable risks. 

[They should] reasonably determine loan interest rates and repayment periods, optimize the approval process, improve financial services, and promote online instant processing.

[They should also] encourage financial institutions to strengthen cooperation with home furnishing manufacturers, home furnishing stores, and home improvement companies to provide financial support for business operators and upstream and downstream enterprises in the supply chain. 

They should support qualified home furnishing stores and other commercial network projects to issue real estate investment trust funds (REITs) in the infrastructure field; continue to support residents in old urban communities to withdraw housing provident funds for self-occupied housing renovations such as the installation of elevators, and expand the scope of policy support to self-occupied housing.

Li Xunlei: Reduce local government debt costs, strengthen standardization and monitoring, optimise the debt structure (Sina opinion piece

At present, local debt has attracted everyone’s attention, as it has a major impact on the development of the national economy and the capital market. It is hoped that the central government can make arrangements as soon as possible with regard to reducing the cost of local debt and preventing regional default risks, which will help improve the vitality of regional economies and effectively reduce market concerns.

For us to simply and mechanically reduce the level of government leverage would conflict with current economic development in the downward phase of the construction cycle. Therefore, it is necessary to have a more in-depth and objective understanding of government leverage and not to worry too much. At the same time, the potential risks of local debt should be dealt with more resolutely and rationally to reduce the total cost of local debt.

(Li Xunlei is chief economist at Zhongtai Securities)

Chinese central bank expands MLF operations in July, rate cuts expected in Q3 (Beijing Business Today)

The central bank’s official website announced that in order to maintain reasonable and sufficient liquidity in the banking system, on 17 July t undertook 103 billion yuan in medium-term lending facility (MLF) operations and 33 billion yuan in open market reverse repurchase operations, which fully met the needs of financial institutions. 

The rates for these operations were 2.65% and 1.9% respectively, both of which were consistent with the previous levels.

During MLF operations in June, the central bank lowered the MLF interest rate, subsequent to which the loan prime rate (LPR) also fell that same month. Recently, there has been a flurry of news stories about whether interest rates for outstanding mortgages can follow the suits, and the market has more expectations on these monetary policy trends in the second half of the year. 

Some analysts believe that the continuation of increases in MLF operations in July has released a policy signal for supplementing the medium and long-term liquidity in the banking system and supporting banks to increase credit extension in the third quarter.

National budgetary revenues for H1 2023 rise 13.3% YoY, tax revenues rise 16.5% (Government announcement

In the first half of the year, the national general public budget revenue was 11.9203 trillion yuan, for a year-on-year increase of 13.3%. This included tax revenue of 9.9661 trillion yuan, for a year-on-year increase of 16.5%, and non-tax revenue of 1.954.2 trillion yuan, for a year-on-year decrease of 0.6%. 

In terms of the central and local governments, the central general public budget revenue was 5.3884 trillion yuan, for a year-on-year increase of 13.1%, and the local general public budget revenue was 6.5319 trillion yuan, for a year-on-year increase of 13.5%. 

In addition to growth driven by economic recovery, the increase in fiscal revenue was mainly due to the implementation of a large-scale value-added tax refund policy in April last year, and more centralized tax refunds, which lowered the base.

Securities transaction stamp taxes fall 30.7% YoY in first half (Ministry of Finance

Stamp duties were 211.5 billion yuan in the first half of 2023, a year-on-year decrease of 14.6%. The stamp duty on securities transactions was 110.8 billion yuan, for a year-on-year decrease of 30.7%.

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