China should further bolster its economy by stepping up fiscal and monetary policy support, including raising the budget deficit and effecting more cuts in the reserve requirement ratio and interest rates, said economists and analysts.
They said the country also needs to strengthen the countercyclical adjustment and roll out new incremental policies soon to address the pressing challenge of the still-weak domestic demand.
Their comments came as the latest data from the National Bureau of Statistics showed a mixed economic picture, with factory activity shrinking for the fourth consecutive month in August.
China's official purchasing managers index for the manufacturing sector dropped from 49.4 in July to 49.1 in August, staying below the 50-point mark that separates growth from contraction. The country's official composite PMI, which covers both manufacturing and nonmanufacturing activities, dropped from 50.2 in July to 50.1 in August, according to the NBS.
Xiong Yuan, chief economist at Guosheng Securities, said the latest PMI readings indicate a continued slowdown in business activity, as August marks the traditional offseason for production in some industries. Other contributing factors include lackluster demand, high temperatures and heavy rainfall in certain regions.
As the broader economy is still facing downward pressures, Xiong called on policymakers to plan more robust policy measures to bolster the economy. "To achieve China's preset annual growth target this year, the country needs to achieve around 5 percent economic growth in the second half," he said.
Xiong said the focus should be placed on planning new incremental policies, particularly expanding this year's deficit ratio, cutting the RRR and interest rates, and lowering interest rates of mortgage loans.
China is considering allowing homeowners to refinance as much as $5.4 trillion of mortgages to lower borrowing costs for millions of families and boost consumption, Bloomberg reported.
According to the report, homeowners will be able to renegotiate terms with their current lenders before January, when banks typically reprice mortgages. They will also be allowed to refinance with a different bank for the first time since the global financial crisis.
The People's Bank of China, the country's central bank, said on Friday that it conducted open market operations of government bond buying and selling in August, which experts said was the first of its kind in nearly two decades.
The PBOC bought short-term government bonds and sold long-term government bonds from some interbank bond market dealers. The net purchase of bonds for the month amounted to 100 billion yuan ($14 billion) in face value.
Wen Bin, chief economist at China Minsheng Bank, said the trading of government bonds in August marks a further evolution of the PBOC's monetary policy framework and has injected liquidity into the market, reflecting the stance to maintain a monetary environment that is conducive to economic recovery.
Pan Gongsheng, governor of the PBOC, said at a symposium on Aug 26 that the central bank will adhere to a supportive monetary policy stance, ramp up financial support for the real economy and explore additional policy tools.
Lu Ting, chief China economist at Nomura, said the trading of treasury bonds would enable the PBOC to better guide the interbank interest rates toward policy rates and modernize its policymaking.
In addition, the PBOC bought special treasury bonds from the market on Thursday, which experts said is an expected move to roll over some of the outstanding special treasury bonds issued in 2007.
Lu emphasized that this purchase is not quantitative easing, as it has no impact on the PBOC's balance sheet, adding that the central bank made two similar purchases in 2017 and 2022.
Zhou Maohua, a researcher at China Everbright Bank, said that China's domestic demand will likely pick up in the remaining months, given the accelerated utilization of ultra-long-term special treasury bonds and local government special bonds, the policies aimed at stabilizing the property market gradually taking effect and the shopping spree during festivals.
On the fiscal policy front, he said there still remains plenty of room for further policy easing, and China will likely step up monetary policy support to stimulate vitality in consumption and investment.
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