Chinese Leaders Acknowledge Economic Challenges in Annual Meeting

In a meeting of the 24-person Politburo on Monday, China’s top leaders acknowledged that the economy was facing “new difficulties and challenges.” This annual gathering, held at the end of July, serves to review the economic situation before the traditional summer break in August.

A readout of the meeting on state broadcaster CCTV highlighted the key issues that the Chinese economy is grappling with. These include insufficient domestic demand, operational difficulties for some businesses, high risks, hidden dangers in critical areas, and a complex and severe external environment.

To address these challenges, the Politburo emphasized the need for “precise and effective macroeconomic regulation” and called for strengthened countercyclical regulation and policy reserves. President Xi Jinping led the meeting, during which they also discussed the importance of expanding domestic consumption and timely adjustments and optimizations of real estate policies.

The Chinese economy has faced disappointing results in recent months. Despite predictions of 7.1 percent growth in the second quarter, the actual growth was only 6.3 percent. This slowdown is partly attributed to sluggish consumer spending and the aftermath of COVID lockdowns in major cities last year.

Notably, youth unemployment reached a record 21.3 percent in June, and the property sector remains in turmoil with major developers failing to complete housing projects, triggering protests and mortgage boycotts from homebuyers.

In response to the economic challenges, the People’s Bank of China previously cut interest rates, and authorities pledged to support the troubled property sector. However, concrete actions from Beijing have been limited.

Observers have been closely monitoring the meeting for signs of significant policy changes or a massive stimulus package. However, it appears that the focus is on maintaining a stable policy tone rather than radical shifts in fiscal and monetary measures.

Instead of unveiling a large stimulus package, the government is likely to continue implementing stimulus measures in a piecemeal manner. For example, recent measures have been introduced to promote automobile purchases, as well as to boost consumption in the artificial intelligence and electronics sectors.

China aims for approximately 5 percent growth this year, one of the lowest targets in decades, which Premier Li Qiang has cautioned will not be easy to achieve. As the Chinese economy faces these new challenges, policymakers are aiming to strike a delicate balance between stimulating growth and managing risks.