China's top leaders have pledged to support an economy that is facing various risks by managing what is viewed as disorderly competition among firms and beefing up capacity cuts in key industries in the second half of the year, the official news agency Xinhua said on Wednesday.
Leaders have signalled they will rein in price wars among producers and expectations are growing that Beijing may be about to start a new round of factory capacity cuts in a long-awaited but challenging campaign against deflation.
Xinhua cited a summary of the proceedings of a meeting of China's Politburo, a top decision-making body of the ruling Communist Party whose July gathering sets the economic course for the rest of the year.
It said that in the second half of the year, China will keep policy stable with "flexibility and foresight", looking to stabilise employment, companies, the market, and expectations.
"It looks like there is a mild pivot towards demand-side policies," said Gary Ng, senior economist at Natixis.
"The government is also more willing to take measures to battle deflationary pressure and overcapacity in the manufacturing sector. However, the stress has not pushed policymakers to commit to more immediate stimulus as they only keep the options open if needed."
China will continue to pursue a more proactive fiscal policy and an "appropriately loose" monetary policy, the summary showed, but made no mention, unlike the April meeting, of interest rates or reserve requirement ratio cuts.
Top leaders called for the use of structural monetary policy tools to provide stronger support for technological innovation, boost consumption, aid small firms, and stabilise foreign trade.
The world's second-largest economy grew 5.2% in the second quarter, slightly ahead of expectations, but analysts say weak domestic demand and rising global trade risks may prompt policymakers to introduce further stimulus.
China is targeting economic growth of around 5% in 2025.
The 15th five-year period (2026–2030) will be crucial for China to achieve economic modernisation, as the country’s development environment faces profound and complex changes, Xinhua reported.
The leadership will hold a fourth plenum in October, according to Xinhua. Analysts expect the meeting will focus on discussions for the new five-year plan.
DEFLATIONARY PRESSURES
The economy faces persistent deflationary pressures as producer prices dropped for the 33rd month in June. A prolonged property downturn is also weighing on the economy despite policy support, while analysts expect the impact of a consumer goods trade-in scheme to fade in the coming months.
"At present, China's economic performance still faces many risks and challenges," Xinhua quoted the Politburo as saying.
The economy has been helped by a rush among exporters to capitalise on a tariff truce between Beijing and Washington.
The two countries agreed to seek an extension of their 90-day tariff truce on Tuesday, following two days of what both sides described as constructive talks in Stockholm aimed at defusing an escalating trade war.
China will unleash the potential of domestic demand and take steps to boost consumption, Xinhua said, adding the issuance and use of government bonds would be accelerated, with more efficient usage.
It will promote technological innovation and speed cultivation of emerging pillar industries that are globally competitive, while curbing disorderly competition among firms.
"Disorderly competition among enterprises must be governed according to laws and regulations," the summary read. "Capacity management in key industries should be advanced."
Analysts believe that stimulating consumer demand remains key to effectively fighting deflation.
