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Beijing needs to implement more “proactive” stimulus measures to distribute growth more evenly among regions and industries, according to a senior Communist party official, as the world’s second-largest economy struggles to recover from a prolonged property slowdown.
While the economy is “moving in a positive direction and making solid progress . . . on the other hand we are also confronted with some difficulties and challenges, which are mainly manifested in a lack of effective demand,” said Han Wenxiu, deputy director in charge of the party’s financial and economic affairs, on Friday.
“This shows that China’s economic recovery is not strong enough and there is divergence in the performance between regions, industries and businesses,” Han said at a media briefing on the third plenum, an important quinquennial Communist party policy meeting that ended on Thursday.
“We need to introduce and implement more robust and effective macroeconomic . . . policies,” he added. “The proactive fiscal policy must be used to better effect.”
The full details of the decisions made at this year’s third plenum, which the party has in the past used to announce large-scale shifts in economic policy, have yet to be released.
But the meeting comes at an important juncture for China’s economy. A years-long crisis in the property market has contributed to weakness in household consumption as well as foreign and domestic investor confidence. President Xi Jinping is encouraging investment in high-technology manufacturing as China seeks to compete with the US amid mounting geopolitical tensions.
But while China is becoming dominant in some technologies, such as electric vehicles, economists say the central problem for its economy is lagging household consumption, a problem acknowledged by Han.
He said the government needed to accelerate the issuance of special-purpose bonds to ensure the smooth functioning of governments at all levels. Many local governments are struggling with debt repayments and to pay the salaries of their civil servants after the collapse of the property sector, a source of revenue.
Han said the government needed to harness the “role of fiscal funds in driving market growth and structural adjustment”, comments that will be welcomed by investors looking for stronger stimulus policies to help China’s economy during the property downturn.
Han also gave more details of potential adjustments in the sharing of fiscal burden between central and local governments, a significant concern given many provinces and townships lack the funds to drive economic growth following the real estate bust.
Many analysts say that while local governments have the responsibility for a majority of public services, they lack the power to raise the necessary revenue to pay for them, forcing them to resort to debt and off-balance sheet methods.
“We need to improve the fiscal relations between the central and local governments,” Han said. This would include increasing local government’s fiscal resources and expanding their tax bases while also increasing the proportion of public expenditure covered by the central government.
Han said the government was also looking at updating tax rules to cover new growth sectors, such as the fast-changing ecommerce sector.
Additional reporting by Cheng Leng in Hong Kong
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