Residents spend quality leisure time at a night market in Bijie, Southwest China's Guizhou Province. As the night-time economy is booming, more than 100 street vendor stalls have been set up. Photo: VCG

Chinese and overseas markets on Tuesday responded positively to a top meeting on the Chinese economy, where top Chinese officials vowed various efforts to ensure reasonable economic growth amid new challenges, which evidently injected confidence into the growth prospect of the world's second largest economy despite downward pressure.

The meeting of the Political Bureau of the Communist Party of China (CPC) Central Committee, presided over by General Secretary of the Communist Party of China (CPC) Central Committee Xi Jinping, has sent a strong signal that Chinese policymakers are moving swiftly to take concrete steps to tackle domestic and external challenges and boost economic development in the second half of the year, so as to meet growth target for the year, analysts said.  

The meeting pointed out that the economic situation faces new challenges due to insufficient domestic demand, difficulties for some enterprises, risks in crucial sectors, and a complex and severe external environment. However, the Chinese economy still has vast potential, and the long term positive fundamentals remain unchanged.
  
Reviving confidence 

Before the meeting on Monday, many foreign media outlets were hyping negative views on the Chinese economy due to slowdown pressures. But on Tuesday, market confidence clearly improved, as stock prices surged, northbound capital inflows increased, and overall market performance indicated a renewed confidence among investors.

The stock market opened higher on Tuesday morning and continued the rally throughout the day, with all three major indexes on the Chinese mainland surging over 2 percent. At market close, the Shanghai Composite Index edged up by 2.13 percent, the Shenzhen Component Index rose by 2.54 percent, and the ChiNext Index gained 2.14 percent. 

Over 4,200 stocks made gains and more than 70 stocks hitting the daily limit increase of over 10 percent.

Foreign capital is also buoyed by the meeting. Net inflow of "northbound capital" - overseas money flowing into China's A-share market - reached 18.9 billion yuan on Tuesday, a new high for the year. The offshore yuan has strengthened over 300 points against the US dollar, trading at 7.1469.

The capital market and foreign exchange market have both reacted positively and strongly to the recent meeting, as it has set tone for the economic work for the rest of the year and has significantly improved economic expectations for the second half of the year in China, Tian Yun, a veteran economist based in Beijing, told the Global Times on Tuesday.

"It confirms that China has enough policy room to support the economy," Tian said.

While some foreign media said the meeting did not announce a large-scale stimulus plan and lacked specific details, Tian argued that China's economy achieved a 5.5 percent growth in the first half, indicating a continued recovery. Therefore, there is no need to implement aggressive stimulus policies.

"Massive stimulus will only push China into the trap of deep debt," Tian noted. 

Chinese officials have also been stressing the need to avoid broad-based stimulus, as they also focus on improving quality of economic development, rather than just speed.

Expected policy measures 

Still, there are plenty of policy tools at Chinese officials' disposal to ensure both speed and quality. Monday's meeting showed a strong signal of policymakers taking steps to stabilize the economy, the market, and confidence in the second half of the year.

For macroeconomic policy, experts believe the recent "strengthening counter-cyclical adjustment" as mentioned at the meeting indicate the possibility of implementing monetary easing measures in the second half of the year, including a policy rate cut in the third quarter.

It is not ruled out that China will lower the reserve requirement ratio (RRR) in August and September, Ming Ming, chief economist at CITIC Securities, told the Global Times.

According to experts, some of the policies discussed in the meeting have surpassed what the market expected. These policies specifically focus on the capital market, property market, and job market.

Experts highlighted that in the second half of the year, China may accelerate its opening up and increase efforts to attract more foreign investment as the meeting emphasized the need to "boost the capital market and restore investor confidence." 

Tao Chuan, chief macro economy analyst from Soochow Securities, told the Global Times that the move on one hand will further stabilize the capital market, enhance the activity of private investment and improve their financing environment. On the other hand, it serves as a "reassurance" to stabilize foreign investment in China through policy measures.

Notably, the phrase "housing is for living in, not for speculation" was absent from the meeting announcement, which experts believe is a significant signal for an easing in real estate policies in the second half.

It is expected that the administrative and restrictive policies that were previously implemented during periods of real estate market overheating  will gradually be phased out, Tao said.

Experts also noted that for the first time, the meeting has "put the importance of stabilizing employment at a strategic level," which reflects a high-level priority to stabilize employment.

China's employment has remained largely stable in the first half of 2023, with the average surveyed urban unemployment rate dropping down 0.2 percentage points from the first quarter to 5.3 percent. Yet, the surveyed unemployment rate for young people aged between 16 and 24 in June stood at 21.3 percent, recording a new high.

It is expected that in the future there will be increased support for employment among young people to achieve the goal of stable employment, Ming said.

With the improved expectation, policy adjustment and more policies being rolled out in the second half of the year, China is capable of achieving annual growth of around 5.5 percent this year, Tian said.