Policy “Combination Punch” to Drive Economic Continuity – Four Departments Explain Macroeconomic Policy Focus

China’s economy has shown overall signs of recovery and improvement this year, but it also faces new challenges. How can macroeconomic policies be better deployed to sustain economic recovery? On August 4, the National Development and Reform Commission, the Ministry of Finance, the People’s Bank of China, and the State Taxation Administration jointly held a press conference to introduce the main focus of the next steps in macroeconomic policies.

Planning and researching more targeted and forceful reserve policies:

Yuan Da, Vice Secretary-General and Director of the General Office of the National Development and Reform Commission, stated that the commission, in coordination with relevant parties, will precisely and effectively implement macroeconomic regulation, organize and implement the continuation of phase policies, and continue to plan and research a batch of more targeted and forceful reserve policies. These policies will be issued in a timely manner according to changes in the situation.

Regarding expanding domestic demand, Yuan Da explained that they would effectively implement a series of policies to recover and expand consumption and vigorously stimulate private investment. Additionally, policies will be strengthened to better meet the rigid and improvement needs for housing, actively expand effective investment, and continuously unleash the immense potential of the large-scale market.

Yuan Da also emphasized the importance of strengthening and optimizing the real economy, promoting high-level technological self-reliance, continuously deepening reform and opening up, effectively guaranteeing improvements to people’s livelihood, and preventing and resolving risks in key areas.

Monetary policy has ample policy space:

Zou Lan, Director of the Monetary Policy Department of the People’s Bank of China, stated that this year, China’s prudent monetary policy has been precise and forceful, with increased countercyclical adjustments, ensuring reasonable and sufficient liquidity, optimizing credit structure, and promoting sustained economic recovery and improvement.

In the first half of the year, the People’s Bank of China reduced the reserve requirement ratio by 0.25 percentage points, releasing long-term liquidity of over 500 billion yuan. By the end of June, the broad money supply (M2) grew by 11.3% year-on-year, remaining at a high level. The loan market quoted interest rates (LPR) were guided to decline, with the average interest rate for corporate loans falling to 3.95% in June.

“In recent years, China has adhered to the implementation of prudent monetary policies with ample policy space, abundant policy tools, and confidence, conditions, and capabilities to address various risks and challenges,” Zou Lan said. The People’s Bank of China will continue to strengthen countercyclical adjustments and policy reserves, effectively implement existing monetary policy tools, extend the implementation period of policies in areas with prominent structural contradictions, and adopt multiple measures to consolidate policy effects. If necessary, new tools will be created to continuously support key areas such as inclusive finance and green and low-carbon development.

Regarding the possibility of further interest rate cuts and reserve requirement ratio reductions, Zou Lan mentioned that the People’s Bank of China will comprehensively evaluate the deposit reserve ratio policy based on the progress of policy tools usage and the medium-to-long-term liquidity situation, ensuring the reasonable and sufficient liquidity in the banking system. Meanwhile, they will scientifically grasp interest rate levels, balance growth and risks, internal and external factors, prevent fund arbitrage and idle circulation, enhance policy transmission efficiency, and enhance financial support for the sustained development of the real economy.

Optimization and continuation of multiple tax and fee preferential policies:

Making follow-up arrangements for phase policies expiring in the next two years is of significant importance to stabilize corporate expectations, boost confidence, and arrange investment and operations.

“With the current uncertainties and unpredictable factors facing our country’s development, small and micro enterprises and individual businesses are still facing many difficulties,” said Wei Yan, Deputy Director of the Taxation Department of the Ministry of Finance. The State Council’s recent executive meeting made arrangements for ten tax and fee preferential policies involving small and micro enterprises and individual businesses.

On one hand, four phase policies will be continued and implemented until the end of 2027 after being optimized and improved to provide stronger support. For instance, the range of halving individual income tax for individual businesses will be adjusted from annual taxable income not exceeding 1 million yuan to not exceeding 2 million yuan.

On the other hand, six other phase policies will continue to be implemented until the end of 2027. These policies include tax incentives for small-scale taxpayers, tax incentives for small loans, tax incentives for financing guarantees and re-guarantees, tax and fee preferential policies for loan contracts, corporate income tax incentives for small and micro enterprises, and tax incentives for venture capital investment.

“The implementation of these policies will effectively support the recovery and development of small and micro enterprises, better boost confidence, and create a favorable environment for the development of the private economy,” Wei Yan said.

Enabling “policy finds the right person” and “policy delivered at the doorstep”:

In the first half of the year, China’s new tax cuts, fee reductions, and deferred taxes and refunds totaled 927.9 billion yuan, providing strong support for the sustained economic recovery and overall improvement.

“Recently, a large number of tax and fee policy projects have been extended, optimized, and improved. They cover a wide range of areas and have a long duration. Some policies need to be traced back to January 1 this year, which poses relatively high requirements for policy implementation,” said Luo Tianshu, Chief Accountant of the State Administration of Taxation.

Luo Tianshu stated that, on the basis of comprehensive policy promotion, the tax authorities will leverage big data on taxation to comprehensively screen taxpayers and payers eligible for policy conditions and promptly carry out “one-on-one” targeted delivery efforts, striving to enable “policy finds the right person” and “policy delivered at the doorstep.”

Promoting strengthened policy coordination and collaboration among departments:

How to improve policy coordination? Yuan Da stated that the National Development and Reform Commission will work with relevant parties, adhere to problem-oriented approaches, strengthen overall planning and coordination, and deliver an effective macroeconomic policy “combination punch.”

Yuan Da explained that they should strengthen economic situation analysis and judgment, grasp the timing, strength, and pace of policy implementation. Further improvements should be made in the regular communication and exchange mechanism between government departments and enterprises, in which the real situation of business operation and development should be heard. In addition, policy propaganda, interpretation, and promotion will be intensified.

Yuan Da also emphasized that before formulating and releasing policy documents, departments will conduct a consistency assessment with macroeconomic policy orientation in terms of policy content and timing, thereby promoting strengthened policy coordination and collaboration among departments and preventing the occurrence of “synthetic fallacies,” ensuring a stable and predictable macroeconomic policy environment.

“With the effects of the ‘combination punch’ policies becoming increasingly apparent, the economy will maintain a stable and positive trend in the second half of the year, building on the continuous recovery in the first half,” Yuan Da said. (Reporters Chen Weiwei, Wu Yu, Shen Cheng, Wang Yuxiao, Zhou Yuan)