China Vows Greater Focus on Demand With Growth Target at Risk

• Top leaders list boosting consumption over tech for short-term
• Weak consumer spending weighing on about 5% expansion goal

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China’s ruling Communist Party pledged to make boosting consumption a greater focus and ramp up support for the economy, as weak domestic demand threatens the annual growth target.

“The focus of economic policies needs to shift toward benefiting people’s livelihood and promoting spending,” top leaders agreed at a meeting of the 24-member decision-making body led by President Xi Jinping, the official Xinhua News Agency reported. Officials also vowed to roll out a batch of new measures to support the economy at an appropriate time, without elaborating.

China’s top leader telegraphed his blueprint for cutting-edge manufacturing to propel the world’s No. 2 economy at a twice-a-decade huddle earlier this month on long-term reforms. Officials at the July meeting seemingly downplayed that goal, only listing it as a work priority after boosting consumption. That signaled a shift in Beijing’s short-term agenda as a lingering property crisis and weak job market stifle consumer sentiment.

Consumer Spending Underperforms Despite Fiscal Aid

Monthly factory output and retail sales (December 2019 = 100)

Source: Bloomberg Economics based on National Bureau of Statistics

“The government recognizes that domestic demand is weak and plans to prepare some policy measures in the pipeline to address the problem,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management.

China’s economic growth unexpectedly slowed to the worst pace in five quarters in data released earlier this month, as faltering consumer spending undermined an export boom. That triggered calls for policymakers to unleash government support to help Beijing hit its annual growth goal of about 5%.

The central bank has since stepped in with a string of surprise interest-rate cuts, while the Finance Ministry has allocated funds raised by special sovereign bonds to finance a cash-for-clunkers program to stimulate consumption.

The Politburo’s commitment to boost the weaker side of China’s twin-track economy was a “good shift” but short on detail, said Michelle Lam, Greater China economist at Societe Generale SA.

“Policymakers could still be focusing on better supply of services to drive consumer demand,” she added. “It doesn’t seem like they are thinking about something unconventional, which is needed to revive weak investor confidence.”

Leaders gave broad pledges to increase household income and make lower-income groups more willing and able to spend, and highlighted areas including services, tourism and elderly care in the report. Chinese ministries will likely fill in the details in the coming months.

Policymakers also sought to reassure on long-term prospects, calling the problems faced by China “temporary pains” as the economy transitions from old to new drivers. Xi is trying to wean China off decades of debt-driven boom-and-bust cycles, as he boosts tech self-sufficiency against the US amid growing trade tensions between the world’s largest economies.

The Politburo’s July meeting is one of its three annual huddles to focus on the economy, and is closely watched for signals of policy shifts. Parsing the language of such events is important as officials became less open to discussing policies with experts, and Xi’s consolidation of power means the economic decision-making process is increasingly opaque.