China leverages financial toolbox to spur domestic demand

Special: Battle Against Novel Coronavirus

Faced with resurgences of COVID-19 and external uncertainties, China is maneuvering monetary and fiscal policies to spur domestic demand.

A State Council circular released on Tuesday specified measures to stabilize investment and boost consumption, once again putting the domestic demand front and center on the work agenda.

Contributing 96.3 percent to economic growth, domestic demand served as a main driver of the Chinese economy in the first quarter of 2022, helping the country stand firmly amid the less benign global environment.

However, official data showed that both retail sales and fixed-asset investment saw a feeble performance in April, indicating that the consumer and business demands are still under strain.

"To attain this year's economic growth target, domestic demand is of paramount importance," said Lian Ping, chief economist at Zhixin Investment Research Institute, stressing that a robust home market is a key to withstanding the pressures from pandemic impact, imported inflation and volatile global situation.

In a bid to stimulate investment, Lian urged efforts to spur investment in infrastructure, deeming it a stabilizer for the economy.

Since the beginning of the year, Chinese policymakers have rolled out a bevy of financial support to meet the financing need in the infrastructure sector.

The latest move came as Wednesday's State Council executive meeting pledged another 800 billion yuan (about 119.23 billion U.S. dollars) of the credit line, to provide financial support for infrastructure construction.

Meanwhile, more capital has been tilted to the sector by expediting the issuance of special-purpose bonds for local governments.

By May 15, the value of special-purpose bonds for local governments came in at 1.5 trillion yuan. Much of the funds were channeled into infrastructure construction such as the development of industrial parks, transport, water conservancy facilities and cold-chain logistics.

"Funding for infrastructure will be adequate this year," said Li Yishuang, a chief fixed-income analyst at Cinda Securities, expecting the size of the new special bond issuance in May alone to reach 500 billion yuan to 600 billion yuan.

Industry insiders believe that with the pro-growth policy mix advanced, the cash strain will be effectively relieved.

"The fixed-asset investment will grow rapidly, boosted by the accelerated infrastructure investment and steady growth of manufacturing investment," Lian said.

On the consumption front, a pivotal pillar of domestic demand, China is wielding its monetary and fiscal policies to revive the home market.

A case in point is that the country recently announced to halve the purchase tax for eligible passenger vehicles and ease restrictions, directly boosting the auto sales and underpinning the consumption.

In another move to lure more consumption, local governments, taking Shenzhen and Zhengzhou for instance, are handing out billions of yuan in shopping vouchers and subsidies.

"Shopping vouchers spur consumption instantly," said Pan Helin, a researcher at Zhejiang University, noting that with certain spending rules in place, vouchers can drive up demand and amplify the effect of fiscal funds.

Zhang Aoping, the dean of the Incremental Research Institute, said there is still sufficient room for fiscal and monetary policy to cope with the possible tougher time in the future, as China insisted on deserting the "flood-like stimulus." He also expected more incremental policies are on the way.

With the intensive implementation of micro and macro policies, China's economy is expected to embrace a new round of recovery by the end of the second quarter of this year, Zhang said.