Economic Watch: China intensifies moves to bolster economy as recovery continues

This photo taken on April 27, 2023 shows an automatic production line at a factory of Zhejiang Aishida Co., Ltd. in Wenling, east China's Zhejiang Province. (Photo by Xu Weijie/Xinhua)

BEIJING, June 15 (Xinhua) -- China has ramped up efforts on both monetary and fiscal fronts to sustain growth momentum as the latest data shows a continued economic recovery, albeit with some challenges remaining.

On Thursday, the People's Bank of China, the nation's central bank, reduced the one-year interest rate of its medium-term lending facility, a tool adding liquidity to the banking system, by 10 basis points to 2.65 percent. About 237 billion yuan (33.15 billion U.S. dollars) was pumped into the market through the operation.

It followed two similar policy rate cuts announced on Tuesday, in the seven-day reverse repo rate and the standing lending facility rate.

The moves sent a clear signal that authorities are making greater efforts to strengthen counter-cyclical adjustment and shore up market expectations, analysts said.

Wang Qing, an analyst with Golden Credit Rating, predicted that with lower lending costs for businesses and residents, credit demand will be unleashed and consumption and investment will be bolstered.

The strengthened monetary support comes as a slew of economic data shows the Chinese economy has continued on its upward trajectory, with steady industrial and service expansion, stable employment and resilient foreign trade.

In May, the country's value-added industrial output went up 3.5 percent year on year, retail sales of consumer goods gained 12.7 percent, and the service sector index rose 11.7 percent, according to the National Bureau of Statistics (NBS) on Thursday. Fixed-asset investment went up 4 percent in the first five months, and the surveyed urban unemployment rate stood at 5.2 percent last month.

At a press conference on Thursday, NBS spokesperson Fu Linghui cited some bright spots from increased production, recovering consumption and demand, resilient trade, stable employment and prices, and steady high-quality development.

But he also acknowledged that in a complicated global environment, challenges remain. Some production and demand indicators have seen slower growth due to a high base a year ago, and the foundation for the economic recovery is not solid.

"Concerted efforts should be made to ensure effective policy implementation, invigorate business entities and stabilize market confidence," Fu said.

In a circular issued on Tuesday by authorities including the National Development and Reform Commission, 22 major tasks were listed to reduce costs for businesses this year.

The government will work to lower financing costs for business entities and increase loans to small and micro firms. Sectors dedicated to technological innovation or key industrial chains will enjoy tailor-made tax and fee cutting measures, and small taxpayers with monthly sales of less than 100,000 yuan will be exempted from value-added tax by the end of this year, the circular said.

Yang Chang, an analyst with Zhongtai Securities, said the policies will reduce the burden on the real economy, help businesses improve their performance and stabilize employment.

Looking ahead, analysts believe China's economic outlook is still sound and unchanged.

China's economic growth in the second quarter was significantly faster than in the January-March period and the economic performance will return to the normal level in the second half, Fu said at the press conference.

Supportive factors have become more apparent, including consumption gaining in power as a driving force, innovation power accumulating and gathering strength, and more dividends emerging from reform and opening up.

Despite the challenges ahead, China, with its solid material and technological foundation, huge market and stronger innovation capacity, is capable of and confident in overcoming difficulties and promoting the recovery and improvement of the economy, Fu said.

The optimism was echoed by global institutions.

In its China Economic Update on Wednesday, the World Bank maintained its China growth forecast at 5.6 percent in 2023, led by a rebound in consumer demand. It noted that capital spending on infrastructure and manufacturing is expected to remain resilient.

Earlier this week, the Organization of the Petroleum Exporting Countries (OPEC) raised its forecast for the growth in China's oil demand in 2023 by 840,000 barrels per day to 15.7 million, citing "better-than-expected performance in China's economy." OPEC kept the projections for this year's total global demand unchanged.