China's National Bureau of Statistics released the economic data for the first half of 2023 last week. The low producer price index and consumer price index indicated that China's economy is now facing low inflation. 

Therefore, how China's economy will perform in the second half of 2023 garnered attention from global economists. At the China Finance 40 Forum's (CF40) quarterly macro policy report conference, experts delivered one perspective: insufficient demand is still the major challenge. Many experts expressed their views on this challenge at the conference. 

Clear inflation target is necessary

Insufficient market demand was influenced by many factors, said Zhang Bin, senior researcher of CF40 and deputy director of the Institute of World Economics and Politics, Chinese Academy of Social Sciences. He explained that the market demand shortage was initially triggered by a series of negative shocks, such as public health and financial crises. Hence, the market faces a situation of decreasing goods and services prices as well as low labor wages. 

In this situation, it is important to improve market expectations, said Zhang. He stressed that the government needs to specify a specific inflation target and implement strong policies to boost market confidence.

Supportive macro policies are essential

The government should give clear policy goals to stimulate China's domestic demand, said Zhu He, a young researcher of CF40. He mentioned that both fiscal and monetary policies are powerful macro policy tools to adjust demand, and fully implementing them could help China resolve the current situation.

Zhu also stressed on supply-side structural reform. He said the expansion of domestic demand and deepening of supply-side structural reform are not contradictory. Instead, creating a dynamic balance between them could drive supply and supply will create demand.

Restoring credit growth is also key

The lack of demand can be solved by reviving credit growth, said Guo Kai, senior researcher at CF40. He said tight credit growth, falling asset prices, and deteriorating income would reinforce each other, exacerbating weak demand and low inflation. 

He said that increasing enterprise revenue, reducing interest rates, boosting disposable income, and improving public finance would be conducive to recovering credit growth.