Editor's note: Wang Jianhui is the deputy general manager of the research and development department at Capital Securities. The article reflects the author's opinions and not necessarily the views of CGTN.

On July 16, China has presented the scores of its performance for the first half this year, the toughest "mid-term exam" in the last several decades. Overall speaking, the data are quite encouraging, given the unprecedented challenges caused by COVID-19. Thanks to the large savings in the banking system and resumption of business operations in time throughout the country, the Chinese economy has withstood the pandemic impacts, and gradual improvements have been showing up in most areas.

Albeit still in negative territory, the falling growth rate of fixed investment, industrial output, and foreign trade have narrowed down from double-digit between -10.9 percent and -24.5 percent end of February to low single-digit decline between -1.3 percent and -6.6 percent (accumulative) by the end of June. Their better than expected performances, especially the decent trade surplus equivalent to 4.8 percent of quarterly gross domestic product (GDP), contribute the most to the 3.2 percent growth in the second quarter, probably one of the best scores among the major economies. Even the retails sector, which has been relatively lagging behind, seems to be bottoming up from -20.5 percent to -11.4 percent (accumulative).

Both monetary and fiscal policy adjustments are the driving forces behind the recovery. People's Bank of China (PBOC), the central bank, may deserve a little more credits for the hard-earned scores. Not only has it helped to stabilize fixed investment and manufacture, but it also has significantly minimized the risk of a chain reaction of defaults or even a "freezing up" in the financial market by releasing sufficient liquidity. The powerful weapons include policy guidance in credit scale and the reserve requirement ratio (RRR) adjustment. Comparing to the Federal Reserve rate cuts and securities purchase programs, PBOC's moves are more straightforward and effective.

By the end of the second quarter, the growth rate of monetary supply measured by M2 has picked up from 8.8 percent to 11.1 percent, meaning additional liquidity of 5.49 trillion yuan for the market. With more available capital in hand, commercial banks were able to issue 25 percent more new loans, which reached 12.09 trillion yuan at the end of June, a historical high. Due to the mainly prudent policy stance in the previous three years, when M2 growth slowed down from over 11 percent to 8 percent, the central bank had enough running room to change the courses and still had more backup plans if necessary. With the RRR for medium and small banks being lowered from 10.5 percent to 9.5 percent, the RRR for the large institutions, currently at 12.5 percent, could have the room for 100 basis point cut.

The proactive monetary policy, mainly quantitative with less direct moves on the leading interest rate, has been so far doing its job as the decision-makers wanted without major side effects; the non-performing loan rate by the end of the first quarter only marginally increased by 0.05 percentage points (199 billion yuan) compared to the level in the previous quarter; and the inflation remains tame with Consumer Price Index declining from 5.4 percent beginning this year to 2.5 percent in June.

Although smaller in scale, fiscal policy also plays a crucial role during the pandemic, which is psychologically even more important than the monetary front. During the last three years, the Chinese government has been spending more and collecting less to pursue the mission of stabilization of economy and elimination of poverty. The growth rate of expenditure between 2017 and 2019 remained at 7.7, 8.1, and 8.1 percent, outpacing the revenue growth by 0.3, 2.5, and 4.3 percentage points, respectively. Households and businesses were able to use "break" to establish safety cushions against uncertainties. That could explain the relatively outstanding resiliency of the Chinese economy.

By postponing tax and social security payments, issuing emergency subsidies, speeding up the welfare expenditures, etc., central and local governments this year have been providing badly needed relieves to the companies, especially the small and medium ones, so that they could keep as many of their employees as possible.

For the first five months of this year, the national public revenue dropped by 13.6 percent, while the expenditure only decreased by 2.9 percent; the gap in growth rate widened from 4.33 percentage points by the end of 2019 to 10.7 percentage points currently. For the first quarter this year, the 930 billion yuan fiscal deficit accounted for 4.5 percent of the GDP in the quarter, 2.2 percentage points higher on a year-over-year basis. If the uptrend continues, the ratio could reach 5.5 percent in the second quarter, a level still acceptable during the tough times.

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