CF40 highlights strengths in China's economy amid challenges

China's economic trajectory in the second quarter of 2024 reflected improved industrial production and positive export performance, highlighting some strengths in the economy that is facing a key challenge in insufficient demand, according to a quarterly report by the China Finance 40 Forum (CF40), a Chinese think tank, on Monday.

CF40's macro policy report for the second quarter of 2024 highlighted that the manufacturing industry is recovering globally, but inflationary pressures still exist.

In the first half of this year, China's import and export scale and trade surplus both reached historic highs for the same period, the report noted. The cumulative year-on-year growth of China's exports in the first half of the year was 3.6 percent, an increase of 7.1 percentage points compared to the same period of last year.

The report noted that one of the challenges for China continues to be an insufficiency in domestic demand, which is required to have a more balanced trade volume. The think tank said that to better solve these medium- and long-term reform issues, the emphasis for the government is on improving the economic sphere, further optimizing resource allocation and enhancing productivity, which are key goals of structural reform.

These were among the key discussion areas during the recently concluded third plenary session of the 20th Central Committee of the Communist Party of China. 

The Communique of the Third Plenary Session of the 20th Central Committee of the Communist Party of China mentioned the need to deepen the foreign trade structural reform.

It called for strengthening the coordination of trade policies with fiscal, tax, financial and industrial policies. It also proposed to create a set of systems and policies to support efforts to make China a strong trading nation, and step up reforms to integrate domestic and foreign trade.

Meanwhile, the government has introduced highly feasible and practical policy measures targeting specific issues, said CF40. 

The government policies are expected to incrementally build a supportive framework for resource optimization, said Zhang Bin, a non-resident senior fellow at CF40 and deputy director of the Institute of World Economics and Politics of the Chinese Academy of Social Sciences, on Monday, praising the plan to integrate permanent residents into the general public services in cities.

Additionally, fiscal reforms, particularly the redistribution of financial authority and responsibilities between central and local governments, will not only streamline inter-governmental mechanisms but also bolster the government's capacity to fulfill its public service mandate, said Zhang.

He said that local governments should shift some valuable financial resources from subsidizing industrial enterprises to improving public goods and services, supporting low-income migrant population to settle in cities where they work and improving the living standards of low-income people so as to achieve the goal of better resource optimization.

The CF40 report also mentioned the importance of breaking down barriers to entry into the service industry and promoting fairer market competition in the fields of water conservancy, environmental and public facility management, as well as education, health, social security and welfare, social organizations, culture, sports and entertainment.