China will step up policy support for economic growth, says premier

China will step up support for the economy, Premier Li Keqiang has said, urging economically important provinces to take the lead in implementing growth policies, state media reported a day after data showed growth unexpectedly slowed last month.

China’s economy continued to recover in July but there were “small fluctuations”, Li said during a Tuesday video meeting with senior officials from six major provinces - Guangdong, Jiangsu, Zhejiang, Shandong, Henan and Sichuan.

“A sense of urgency must be strengthened to consolidate the foundation for economic recovery,” Li was quoted as saying.

The central bank cut key lending rates in a surprise move on Monday to revive demand, as data showed the economy slowing in July, with factory and retail activity squeezed by a zero-COVID policy and a property crisis.

Authorities would thoroughly implement a package of policy measures unveiled in May, and would increase the intensity of macro-economic policies to keep economic activity within a reasonable range, Li was quoted as saying.

The world’s second-largest economy narrowly avoided contracting in the second quarter due to widespread COVID-19 lockdowns.

Analysts said a full-year growth target of about 5.5% has been looking increasingly unattainable. China last missed its growth target in 2015.

China will try hard to achieve the best possible results for the economy this year, state media said last month after a high-level meeting of the ruling Communist Party, dropping previous calls that it would strive to meet its 2022 growth target.

Large provinces must take the lead in growing the economy, and those in a position to achieve their economic goals should do so, state media reported at the time, following the meeting.

Li described Guangdong, Jiangsu, Zhejiang, Shandong, Henan and Sichuan, which account for 45% of gross domestic product, as “pillars” of economic development, and said it was their responsibility to consolidate an economic recovery.

“Li urged the economic powerhouses to ensure solid implementation of a package of pro-growth policies while leveraging policies to energise market entities, smooth logistics, and stabilise industrial and supply chains,” the state-run Xinhua news agency reported.

Li also demanded that the provinces take measures to promote big-ticket consumption while ensuring livelihoods.

Meanwhile, China will support around 300 service platforms to help with the digital transformation of 4,000-6,000 small- and medium-sized enterprises till 2025, the country’s industry and information technology ministry and finance ministry said on Wednesday.

“From 2022 to 2025, the central government plans to support local governments to carry out digital transformation pilots for small and medium-sized enterprises,” the ministries said in a joint statement. In 2022 alone, the central government plans to support about 100 service platforms with incentives to speed up the digitalisation of firms. Each platform should help with least 10 firms to complete their digital transformation and the maximum reward for each platform shall not exceed 6 million yuan ($885,373.63), according to the statement.

The programme will target firms in key industries such as manufacture of automobile parts, electronic equipment and pharmaceutical and chemical products, the statement said.

Small firms are the mainstay of China’s economy and a major source of jobs, but many of them were hit hard by stringent COVID-related curbs this year.

The Cyberspace Administration of China in late 2021 said the country will achieve “decisive progress” in digitalisation by 2025, a transformation that the country sees as a route to a stronger and more efficient economy.

Separately, China’s yuan firmed on Wednesday, recovering from a three-month low hit in the previous session on growing signals Beijing will provide more support to shore up growth in the struggling economy. Traders were also eyeing minutes from the Federal Reserve’s July meeting due later in the day for any new clues on how large the central bank’s interest rate hike is likely to be in September.

The People’s Bank of China set the midpoint rate at 6.7863 per dollar prior to market open, weaker than the previous fix 6.773. In the spot market, the yuan opened at 6.7800 per dollar and was changing hands at 6.7711 at midday, 179 pips firmer from the previous late session close. China will step up policy support for the economy, state media quoted Premier Li Keqiang as saying on Tuesday, a day after data showed growth unexpectedly slowed last month. “In our view, the meeting highlighted the urgency to fuel the recovery momentum but the focus remained on the implementation of existing pro-growth measures, instead of introducing new growth initiatives,” said Ken Cheung, Chief Asian FX Strategist at Mizuho Bank.