Stabilization policy is the recipe for tackling China’s economic challenges

Beijing, the capital of China. /APC

Beijing, the capital of China. /APC

Editor’s note: Matteo Giovannini is a finance professional at the Industrial and Commercial Bank of China in Beijing and a member of the China Task Force at the Italian Ministry of Economic Development. The article reflects the views of the author, and not necessarily those of CGTN.

China’s economic growth trajectory is arguably one of the most important indicators that foreign analysts and commentators constantly monitor due to the high level of integration between the world’s second-largest economy and the rest of the world.

On April 18, Fu Linghui, spokesperson for the National Bureau of Statistics (NBS) and director general of the Department of Comprehensive Statistics of the NBS, delivered a speech at a press conference organized by the Information Office of the Council of (SCIO) to unveil China’s performance in the first quarter of 2022.

China’s economy beat expectations and grew 4.8% in the first quarter of 2022 from a year earlier, topping the median Bloomberg analyst survey that predicted first-quarter growth of 4.3%. quarter and a growth of 4% in the last quarter of 2021.

After a detailed presentation of the statistical data, a question-and-answer session highlighted a series of stimulus measures that the Chinese government is currently putting in place to better facilitate domestic growth in a difficult year.

A recurring word the speaker used when answering questions from the press was stabilization. The COVID-19 surge in Shanghai had a severe impact, erasing a roughly 0.5 percentage point gain in Chinese GDP in the first quarter, and is likely to affect even the rest of the year. Stability has therefore become a necessity if the country is to mitigate the economic repercussions created by the latest wave of the COVID-19 pandemic.

Last month, Chinese Premier Li Keqiang announced a 2022 GDP growth target of around 5.5% in China’s two sessions. Although the goal seems ambitious, it is incumbent on the Chinese government to take bold decisions using all available macroeconomic tools, such as fiscal, monetary and exchange rate policies, striking the right balance between economic development and response to the pandemic to ensure that the population’s needs are fully met.

I believe that one of the most urgent acts of intervention is the stabilization of the labor market. This first requires putting in place measures that pay particular attention to rural workers, university graduates and workers with disabilities, who represent the most vulnerable categories and those who have been most affected by the pandemic.

Given the record number of university graduates and growing economic pressure, China is now taking initiatives to create jobs through government-sponsored internships and to support workers who depend on flexible payrolls. The introduction of incentives in the form of subsidies to companies that create internships and possibly hire interns represents a well-crafted policy as it guarantees easier access to the labor market for qualified young professionals.

In terms of fiscal policy, the introduction this year of 2.5 trillion Chinese yuan in tax incentives, ranging from corporate tax deductions and value-added tax (VAT) exemption for small taxpayers to deferred tax deadlines and the extension of the period for filing tax returns, represent necessary tools to support businesses and alleviate their current pressure.

Personally, I find the introduction of the deduction of research and development (R&D) expenses for technological small and medium-sized enterprises (VSMEs) extremely targeted, which will increase from 75% to 100%.

Innovation plays a vital role at a time when China’s economy is rapidly shifting from rapid growth to high-quality development, and the launch of dedicated policies that encourage R&D investment will lead to industrial upgrades and substantial economic growth in what is already a technology-intensive market environment.

In terms of monetary policy, the People’s Bank of China (PBOC) recently took the initiative to guarantee financial support for companies by lowering the reserve requirement ratio (RRR) for most banks by 25 basis points, and for small banks by 50 basis points. . According to the central bank’s calculations, the move translates into the release of about 530 billion yuan of long-term liquidity to mitigate a slowdown in economic growth.

I am confident that this decision, which represents the fifth announcement of an RRR reduction by the PBOC since the start of the pandemic, is timely as it allows banks to free up a greater amount of funds providing financial support to the real economy.

The People’s Bank of China. /APC

The People’s Bank of China. /APC

The ability for industries and small and medium-sized enterprises (SMEs) that have suffered the most from the consequences of the pandemic to access a higher level of financing at lower financing costs will result in economic growth and the creation of jobs.

The recent release of a guideline to accelerate the creation of a unified domestic market linking the Chinese mainland with its Hong Kong special administrative region, aiming to create a high-level market system and promote a development of high quality is another key policy.

The establishment of an internal market based on unified standards should be efficient, fair and open, removing all obstacles such as segmentation and protectionism which prevent the economic circulation of products.

In my opinion, the creation of a unified market will lay the foundations for a new development paradigm based on healthy growth, a transparent market environment for businesses and an ecosystem conducive to innovation with quality jobs. .

Furthermore, the unified market could guarantee a good allocation of resources and a drastic reduction in transaction costs. This will mean more trade, higher profit margins for businesses, and an ecosystem that supports sustainable economic growth.

Overall, the package of measures proposed by the Chinese government is not only a necessary step to ensure a smooth navigation through the current economic headwinds, but also an initiative that sows the seeds for growth at term with sustainability, inclusiveness and equity at its core.

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