Communist Party hails rise of consumer finance
Property's diminishing share of GDP could be economic boon; land-based fiscal revenues still fall
Our round-up of key economic and financial developments in China as of Friday, 28 June, 2024:
Communist Party says innovation makes China essential to global economy.
China continues purge of A-share market.
Fiscal revenues from land sales drop due to faltering property market.
Bejing wants haute cuisine and holidays to drive growth in consumption.
Loans by consumer finance companies leap over 38% to breach trillion yuan threshold.
Zhu Min believes real estate sector's declining share of Chinese GDP is an economic boon.
Beijing says foreign capital and foreign-invested companies will continue to play an essential role in the Chinese economy.
2024 Summer Davos Forum: "Chinese innovation essential to global economy"
The 2024 Summer Davos Forum was held in the northern Chinese city of Dalian from 25 - 27 June, with Premier Li Qiang making a keynote address.
State-owned media coverage of the event stressed the opportunities that China's market brings to the rest of the world, as well as China's efforts to drive "sustainable global development."
In a report published on 25 June, the People's Daily - the Communist Party's flagship newspaper, highlighted the significance of China's newly found status as an "engine for driving global innovation" alongside the need for more open international trade.
The report cited the World Economic Forum's (WEF) list of "Technological Pioneers" for 2024, where China placed second with 11 enterprises, as well as its list of 153 global "lighthouse manufacturers", of which 52 were Chinese companies in sectors including photovoltaic technology and electric cars.
"This indicates that China is becoming a new engine for driving global innovation," said Chen Liming (陈黎明), China's chief WEF representative.
"In recent years, China's innovative technologies and applications have led the world in sectors including new energy, mobile payments and cross-border e-commerce."
Chen sought to stress the benefits of trade with China thanks to its new status as a leading innovation nation, while rebuking protectionist measures from other major economies.
"[China] has shared the fruits of innovation with different regions and countries via technology transfers and human resource development, aiding global sustainable development," he said.
"It is not appropriate for certain countries to use sanctions to deal with trade competition. This will not produce good results, but on the contrary, lead to a large-scale reduction in global economic efficiency.
"The final price will be paid by the consumers of all nations."
Central government wants more consumption
On 24 June, the National Development and Reform Commission (NDRC) led the release of the "Measures on Creating New Consumption Scenarios and Cultivating New Growth Points for Consumption" (关于打造消费新场景培育消费新增长点的措施).
The Measures call for "cultivating new scenarios for purchasing and consumption," covering a total of six areas including:
Food and beverage consumption.
Cultural tourism and sporting consumption.
Shopping consumption.
Bulk commodity consumption.
Health and aged care consumption.
Community consumption.
Zhou Maohua (周茂华), macroeconomic researcher at China Everbright Bank, highlighted three considerations behind the release of the Measures:
Further refining policy measures to expedite domestic consumption and drive domestic demand that has remained lacklustre since the end of the Covid pandemic.
Better satisfying the continually increasing consumption demands of Chinese citizens as disposable income increases, including more personalised and diversified forms of consumption.
Further driving China's industrial transformation and upgrade.
"In the long-term, the contradiction with China's consumption problem lies on the supply side," Zhou said.
"Domestic industry needs to continually increase the supply of competitive goods and services based on changing trends in market demand, and continue to deepen supply-side structural reforms."
China needs to cut poison out of the stock market: Cao Zhongming
Leading economist Cao Zhongming (曹中铭) imputes the ongoing poor performance of the Chinese stock market to the poor quality of certain listed companies and heightened wariness amongst the investing public following egregious cases of fraud.
He points in particular to a recent case involving false reporting by Shanghai-listed Kangmei Pharmaceutical, alongside losses of 2.4 billion yuan.
"This listed company didn't withdraw from the market, despite the malignant influence of such false financial reporting," Cao writes.
"On the surface, this appears to be the protection of the interests of investors, but in reality it harms the interests of the capital market.
"For many years, the performance of the Shanghai and Shenzhen stock markets has been poor, and this clearly indicates that capital markets need to cut open the bone to cure the poison."
Cao's remarks arrived just after the SSE Composite Index once again dipped beneath the 3000-point threshold, with some observers speculating that state-owned investors bought up stakes in index-based ETFs to stem further declines.
A-share buybacks hit record high amidst capital market reforms
Buybacks on China's A-share market have hit an unprecedented high, as regulators push for capital market reforms that include raising the quality of listed companies.
Data from Wind indicates that as of 24 June, over 1900 listed companies in China had made buyback announcements, while 1600 companies had actually engaged in buybacks.
The buyback sum this year has already hit a record high of 96.428 billion yuan, ahead of the full-year figure of 91.415 billion yuan for 2023.
A source said to China Securities Journal that the move would help to boost market confidence, optimise the financing structure of the capital market and maintain the investment value of companies.
Real estate's share of Chinese GDP could drop four percentage points, help drive consumption: Zhu Min
A leading Chinese economist has hailed the declining role of the real estate sector in China's national output as a positive development.
Zhu Min (朱民), vice-chair of the China Centre for International Economic Exchanges and a board member of the World Economic Forum (WEF), said that real estate consumption currently accounted for around 16% of China's GDP, which is the highest level internationally.
Zhu expects that the figure could soon fall to 12%, which would be more in line with Western economies and "good news" for the Chinese economy given its implications for other forms of consumption.
"At present, spending by Chinese households on real estate is falling, and the Chinese government hopes to make it possible for some young people and young couples to no longer need to buy homes via the provision of cheap long-term rental apartments," Zhu said.
"Rental housing can markedly reduce residential housing costs, and a reduction in residential housing costs can unleash greater consumer potential."
Zhu made the remarks at the 2024 Davos Summer Forum held in the northeastern Chinese city of Dalian.
China's fiscal revenues from land transfers drop 14%
China's enervated property market has undermined land transfers as a key source of revenue for local governments.
Revenues derived from the transfer of usage rights for state-owned land totalled 1.281 trillion yuan for the first five months of 2024, for a decline of 14% compared to the same period last year, according to figures released by the Ministry of Finance (MOF) on 24 June.
Land auctions are considered to be a key source of revenue for China's local governments, many of whom have become heavily indebted after long bearing a disproportionate share of nationwide fiscal expenditures.
The slide in land transfer revenues could worsen fiscal pressure for local governments, with one senior regional official telling state-owned media that it could "exacerbate income and expenditure conflicts."
Luo Zhiheng (罗志恒), chief economist at Yuekai Securities, told Sina that given the enervated state of the real estate market, land-based fiscal revenues would likely further decline in 2024.
He expects fiscal revenues from land transfers to reach 4.7 trillion yuan in 2024, for a decline of 1.1 trillion yuan, or -19.0%, compared to last year.
State Council wants more foreign investment in China
Premier Li Qiang convened a regular meeting of the State Council on 26 June, on the topics of "researching the usage of foreign capital and work to strengthen the development of technical personnel."
"Foreign-invested enterprises play a key role in the creation of new development conditions," the meeting announced.
"[We] must expand the vigour of the attraction and usage of foreign capital, and simultaneously employ multiple measures to stabilise foreign capital."
The meeting also outlined plans to "deepen opening in key areas, implement the 'cleaning out' of measures that restrict the entry of foreign capital into the manufacturing sector, and drive a new round of measures to expand trial schemes for the opening of the services sector."
Lending by consumer finance companies leaps over 38%
As of the end of 2023, the assets and outstanding loans of consumer finance companies rose 36.7% and 38.2% respectively in year-on-year (YoY) terms to reach 1.2087 trillion yuan and 1.1534 yuan, according to figures from the China Banking Association.
The People's Daily touted the role of consumer finance in "vigorously driving consumption and expanding domestic demand."
In 2023, consumer finance companies also provided 1.661 billion yuan in interest-rate exemptions to 1.11669 million customers, and reduced fees for around 89,500 customers by approximately 212 million yuan.
According to the People's Daily, this helped to "protect the lawful rights and interests of consumers, and raise the level of satisfaction of customers."
Fiscal subsidies given to businesses for capital upgrade loans
The Ministry of Finance, the National Development and Reform Commission, the People's Bank of China and the National Financial Regulatory Administration recently jointly issued the "Notice on the Implementation of Fiscal Subsidy Policies for Capital Equipment Upgrade Loans" (关于实施设备更新贷款财政贴息政策的通知).
According to the Notice, qualified businesses will be eligible for subsidies from China's central government equivalent to 1 percentage point of any bank loans used to fund equipment purchases or upgrades. The subsidies will apply to loans taken during the period from 7 March to 31 December this year.
China's large-scale industrial enterprises see ongoing profit growth
For the period from January to May, China's national industrial enterprises above designated size posted profits of 2.75438 trillion yuan, for a year-on-year rise of 3.4%, according to figures from the National Bureau of Statistics.
Revenues for January to May rose 2.9% compared to the same period last year, for an acceleration of 0.3 percentage points compared to the period from January to April.