The Communist Party of China’s Political Bureau convened a meeting on July 30 to discuss the economy, stating the need to address various external pressures and internal challenges. With mounting pressures in various areas, it is unlikely that the CCP will implement stimulating economic policies and there is a possibility of a trade war with Europe.
According to official media reports, the Political Bureau meeting emphasized the importance of addressing challenges in economic operations. The actions for the second half of the year include implementing a “more proactive fiscal policy” and a “moderately loose monetary policy,” timely planning to introduce “pragmatic and effective incremental policies,” boosting domestic demand, increasing support for key employment groups, and stabilizing the real estate market.
Prior to the Political Bureau meeting, Chinese President Xi Jinping hosted a symposium for non-Party members in Beijing, stating that the current Chinese economy faces “some difficult challenges” and emphasizing the need to enhance the effectiveness of macroeconomic policies in the second half of the year, focusing on tapping into the potential of domestic demand.
On July 31, the National Bureau of Statistics of China released economic data, with the official Purchasing Managers’ Index (PMI) for July in the manufacturing sector at 49.2. The non-manufacturing PMI measuring service sector activities fell to 49, exceeding market expectations and hitting the lowest level since December 2022. A PMI below 50 indicates economic activity contraction.
Bloomberg believes that these PMI data indicate a deepening weakness in the Chinese economy, where the negative impact of weak domestic demand has outweighed the stimulating effect of exports. As Beijing has cut infrastructure spending in recent months, investors are increasingly focused on whether Beijing will roll out stimulus measures to stabilize the economy.
Reuters analysis suggests that the signal from the Communist Party’s Political Bureau meeting is that the current policy focus is on speeding up the implementation of existing policies rather than immediately launching large-scale stimulus plans.
The Wall Street Journal reports that despite the slowdown in Chinese economic growth, the lack of major stimulus policies was in line with external expectations. Zhang Zhiwei, Chief Economist at Pinpoint Asset Management in Shanghai, pointed out that the Party’s Political Bureau did not make any adjustments to fiscal budgets or bond issuance schedules. While officials discussed expanding domestic demand, the emphasis seems to be on improving the supply of goods and services rather than promoting income growth.
Zhang Zhiwei added that the Political Bureau emphasized the importance of promoting a more balanced trade relationship, which may be in response to pressures from trade partners in Europe and elsewhere.
Increasing trade friction between China and Europe is one of the external impacts mentioned at the Communist Party’s Political Bureau meeting. For some time, the EU has accused China of overcapacity in industries such as wind power, photovoltaics, and steel, leading to dumping in Europe, and has initiated anti-subsidy investigations on Chinese export goods. The EU is accelerating the introduction of relevant legislation and preparing trade defense tools.
Before the Political Bureau meeting, reports revealed that the German government was analyzing trade flows, supply chains, and enterprise-level data to identify areas where China still relies on German and European technology, critical components, and industrial expertise. If the EU engages in a trade war with China, Germany could apply effective pressure on China.