Nine Key Signals from the Politburo Meeting: Macro Policies to Boost Effectiveness, Pragmatic and Effective Incremental Policies Expected

According to Xinhua News Agency, the Political Bureau of the Communist Party of China Central Committee held a meeting on July 30 to analyze and study the current economic situation and deploy economic work for the second half of the year.

Current Economic Situation: New Momentum and Optimized Structure

The meeting assessed China's economic performance since the beginning of this year, stating that "China's economy is showing a development trend of new momentum and optimized structure." It also emphasized the need to attach great importance to the difficulties and challenges in economic operations, strengthen confidence, face challenges head-on, make good use of various opportunities and advantages, and promote steady and sustained high-quality development.

Guolian Minsheng believes that the meeting's assessment of the economic situation is more objective and pragmatic, giving structural affirmation to the first-half economy with the phrase "new momentum and optimized structure," and explicitly stating that "great importance must be attached to the difficulties and challenges in economic operations." Therefore, the urgency of "stabilizing growth" in the second half of the year has increased, building consensus for the accelerated release of existing policies and the timely reserve of incremental policies.

Policy Tone for the Second Half: Exert Force and Improve Efficiency

The meeting set the policy tone for the second half of the year, stating that "macro policies should exert force and improve efficiency," "fully leverage the effectiveness of all existing policies, and timely plan and introduce pragmatic and effective incremental policies," and "increase counter-cyclical adjustments."

Zhong Huiyong, an associate researcher at the Antai College of Economics and Management, Shanghai Jiao Tong University, and the China Development Institute, told The Paper that the further shift of policy focus to "exerting force and improving efficiency" is the most noteworthy aspect of this meeting. On one hand, the meeting emphasized the timely planning of pragmatic and effective incremental policies and accelerating the progress of fiscal expenditure and the use of bond funds, indicating that there are still policy reserves for stabilizing growth in the second half. On the other hand, it emphasized expanding domestic demand, basic research, artificial intelligence, building a unified national market, and combating "involutionary" competition, showing that the policy is not simple stimulation but combines short-term support with medium- to long-term structural reforms.

Wang Qing, chief macro analyst at Golden Credit Rating International, believes that the trend of the economy in the second half will still be mainly determined by the strength of current consumption and investment activities. To successfully achieve the annual economic growth target and reverse the downward economic trend since the second quarter, it is necessary to increase counter-cyclical adjustments in the second half.

"Considering that domestic prices will remain mild in the second half of the year and China's government debt ratio is at a medium-to-low level globally, there is ample room for various growth-stabilizing policies in the second half," Wang Qing said.

Accelerate Fiscal Expenditure and the Use of Bond Funds

The meeting described the fiscal policy for the second half as "more proactive." It also pointed out the need to accelerate the progress of fiscal expenditure and the use of bond funds, vigorously promote the construction of "two major" projects and the work of "two new" initiatives, and firmly secure the baseline for grassroots "three guarantees."

Zhang Bin, a senior researcher at CF40 and deputy director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, believes that fiscal expenditure intensity was weak in the first half of the year, and the urgent task is to quickly reverse the slowdown in fiscal and credit expansion since the second quarter.

In Zhong Huiyong's view, the focus of the "more proactive" fiscal policy in the second half may not only be on expanding scale but more on accelerating expenditure progress and improving the efficiency of fund usage, pushing funds for "two major" projects, "two new" initiatives, livelihood security, consumption promotion, and local "three guarantees" to form actual demand as soon as possible.

Wen Bin, chief economist at China Minsheng Bank, believes that the direction of fiscal policy is clearer. The rigid requirement to "accelerate progress" means that the issuance and use of ultra-long special sovereign bonds, new special-purpose bonds, and new policy-based financial instruments will significantly speed up in the second half. The allocation of funds is refined into two specific handles: "two major" projects and "two new" initiatives, significantly enhancing policy operability. In addition, "firmly securing the baseline for grassroots 'three guarantees'" will remain an important goal.

Wang Qing believes that in the short term, the focus will be on accelerating the pace of fiscal expenditure and the issuance and use of government bonds, speeding up the implementation and effectiveness of the 800 billion yuan new policy-based financial instruments to drive investment to stop falling and stabilize. Regarding incremental policies, there may be additional issuance of government bonds of a certain scale, mainly used to promote consumption and stabilize investment.

Comprehensively Use and Timely Adjust Monetary Policy Tools

The meeting required monetary policy to be "moderately loose" and pointed out the need to comprehensively use and timely adjust monetary policy tools, optimizing the implementation of fiscal-financial coordination policies to boost domestic demand.

Regarding the arrangement to "comprehensively use and timely adjust monetary policy tools," Zhong Huiyong believes this signals that monetary policy will remain flexible and moderate, making decisions based on circumstances. "The current focus is not simply on whether to cut reserve requirement ratios or interest rates, but on coordinating aggregate tools and structural tools to maintain reasonable and ample liquidity, promote a steady decline in financing costs, and strengthen coordination with fiscal policy."

On "optimizing the implementation of fiscal-financial coordination policies to boost domestic demand," Wen Bin stated that in the first half of the year, a new 100 billion yuan special fund for fiscal-financial coordination to boost domestic demand was established, combining loan interest subsidies, financing guarantees, risk compensation, and other methods to support the expansion of domestic demand, which has yielded good results. In the second half, optimization will continue based on previous experience, jointly guiding resources to gather in the fields of consumption and private investment. Wang Qing believes that the scale of supporting funds may further increase in the later period, and the scope of support will also expand.

Luo Zhiheng, chief economist and dean of the research institute at Yuekai Securities, believes that looking ahead, fiscal-financial coordination policies to boost domestic demand need to be further optimized in three aspects: first, timely expand the scope of policy support and increase the intensity of policy support; second, appropriately expand the range of agencies handling fiscal interest subsidies; third, establish a normalized mechanism for evaluating policy effectiveness and disclosing data.

Consumption: Expand High-Quality Supply

The Politburo meeting in late April required "deeply tapping the potential of domestic demand" for expanding domestic demand, while this meeting's wording was "effectively expand domestic demand." Wen Bin believes this indicates that the urgency of expanding domestic demand has further increased.

Regarding consumption, the meeting emphasized adapting to the consumption needs of different groups by expanding high-quality supply and tapping the potential of service consumption.

"Currently, the main bottlenecks in consumption are in three areas: residents' income and employment expectations still need consolidation; rigid expenditures such as housing, education, healthcare, and elderly care affect willingness to consume; and the supply of high-quality services cannot fully match the needs of different groups," Zhong Huiyong said.

Luo Zhiheng believes that the meeting's emphasis on "adapting to the consumption needs of different groups by expanding high-quality supply" indicates that boosting service consumption in the next stage will focus more on the supply side. The main considerations are, first, that service supply can simultaneously drive consumption upgrades and the development of modern service industries; second, service supply has a significant role in regional balance.

Luo Zhiheng suggests that through expanding high-quality service supply and boosting service consumption, relevant policy directions include: first, improving the institutional environment for high-quality development of the service industry; second, enhancing the internal motivation of local governments to develop the service industry. "It is necessary to optimize statistical calibers and tax distribution mechanisms related to the service industry, improving the 'identifiability' and 'assessability' of service industry development, so that local governments have stronger motivation to promote capacity expansion and quality improvement in the service industry."

Investment: Solidly Advance the Planning and Construction of the 'Six Networks'

Regarding investment, the meeting required solidly advancing the planning and construction of the "Six Networks," emphasizing the key areas for investment in the second half of the year.

"The performance of fixed asset investment in the first half of this year was largely affected by the progress of project construction and the pace of related fiscal fund allocation," Luo Zhiheng said. In the second half, as major projects such as the "Six Networks" gradually enter the construction and implementation phase, infrastructure construction is expected to accelerate significantly, driving an improvement in the growth rate of fixed asset investment compared to the first half. First, major projects will gradually complete preliminary preparations, and the pace of construction and implementation will accelerate significantly; second, the intensity of fiscal fund allocation related to investment and construction in the second half will significantly increase; third, the 800 billion yuan new policy-based financial instruments are expected to be concentratedly allocated in the second half.

Wen Bin believes that "solidly advance" indicates that the "Six Networks" are rapidly shifting from planning reserves to project implementation. Subsequent policy focuses may include accelerating project commencement, ensuring funding and factor guarantees, and coordinating construction and operation, promoting infrastructure investment to better play its role in stabilizing growth and promoting transformation.

Accelerate the Construction of a Modern Industrial System and Strengthen Long-Term Stable Support for Basic Research

The meeting emphasized accelerating the construction of a modern industrial system, strengthening long-term stable support for basic research, deeply implementing the "Artificial Intelligence +" action, developing new forms of intelligent economy, and improving the artificial intelligence governance system. It also actively promoted breakthroughs in frontier technologies and the development of future industries, focusing on creating emerging pillar industries and continuously promoting the transformation and upgrading of traditional industries.

Zhong Huiyong believes that strengthening long-term stable support for basic research is the underlying support for building a modern industrial system. Modern industrial competition is not just about production capacity, but also about core technologies, key materials, basic software, algorithms, and engineering capabilities. Basic research has a long cycle, high risk, and strong spillover effects, and short-term corporate investment is often insufficient. Continuous and stable support for basic research helps enhance the autonomy of the industrial chain and can provide source innovation for artificial intelligence, future industries, and emerging pillar industries.

The meeting again emphasized artificial intelligence. Wang Qing believes that domestic support for the development of artificial intelligence will continue to increase in the second half, with a focus on large-scale commercialization, promoting industry penetration, improving labor productivity in traditional industries, and achieving a closed business loop.

The meeting made deployments for both emerging pillar industries and traditional industries, and also emphasized "accelerating the conversion of old and new kinetic energy." "The key now is to rapidly expand the upward branch of the 'K-shaped' differentiation of new kinetic energy, while controlling the pace of decline in old kinetic energy to stabilize the overall macroeconomic situation," Wang Qing said.

Continue Comprehensive Remediation of 'Involutionary' Competition

The meeting emphasized the need to create a fair and orderly market competition environment, formulate and implement regulations for building a unified national market, continue comprehensive remediation of "involutionary" competition, and normalize the resolution of overdue accounts payable to enterprises.

Wen Bin stated that this meeting further clarified the formulation and implementation of relevant regulations, indicating that the construction of a unified national market is shifting from directional deployment to institutional constraints. The next step is expected to strengthen constraints around market access, fair competition review, bidding, and the boundaries of local government behavior, promoting competition to shift from low-price internal friction to competition in quality, technology, and efficiency.

In addition, regarding the resolution of overdue accounts payable to enterprises, the meeting emphasized "normalization." "This is no longer just short-term risk disposal, but a long-term governance task related to the business environment, corporate cash flow, and smooth economic circulation. Subsequently, it is necessary to strengthen budget constraints, payment constraints, and penalties for dishonesty, promoting the clearing of arrears from concentrated remediation to long-term governance," Wen Bin said.

Promote Balanced Trade Development

The meeting pointed out the need to expand the space for mutually beneficial international economic and trade cooperation, vigorously develop service trade, and promote balanced trade development.

"'Mutually beneficial cooperation' and 'balanced trade development' release two signals," Zhong Huiyong said. First, China will continue to adhere to opening up and expand the space for economic and trade cooperation against the backdrop of rising external uncertainty; second, foreign trade development will place greater emphasis on structural optimization, not only pursuing export scale but also valuing imports, service trade, two-way investment, and diversification of trade partners. Vigorously developing service trade not only helps alleviate goods trade friction but also enhances China's ability to participate in services and rules in the global value chain.

Wen Bin believes that goods trade faces double pressure from external tariff barriers and geopolitical conflicts, narrowing the space for relying solely on goods trade to "win by volume." Service trade has become a new growth point. Subsequent policies will extend from the "hard exports" of goods trade to the "soft exports" of service trade. In addition, optimizing the trade structure by expanding imports and developing service trade not only alleviates external friction but also provides more high-quality supply for domestic consumers.

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