China's precise macro policy design shores up economic resilience

China's precise macro policies, stressing cross-cyclical adjustment, have proved to be an effective recipe for steady economic recovery this year despite headwinds from home and abroad.

China's economic performance has come under the global spotlight with its GDP for the first three quarters recorded at 9.8 percent, well above its annual growth target of over 6 percent.

The country's foreign trade navigated epidemic-induced challenges as total imports and exports expanded 22 percent year-on-year to 35.39 trillion yuan ($5.56 trillion) in the first 11 months of 2021, surpassing the total for all of 2020.

The stable growth this year can be attributed to the country's holistic approach in managing domestic and international situations and coordinated measures in epidemic control and economic development, said Wang Likun, a researcher with the Development Research Center of the State Council.

"Cross-cyclical adjustment," as China's macro-economic policies prioritize, is a term with a focus on boosting economic resilience in the short term while allowing policy leeway for future uncertainties, instead of resorting to a deluge of stimulus policies.

It features proactive fiscal policy, which should generate a greater effect and the prudent monetary policy that should maintain reasonably ample liquidity and support the continued recovery of small and medium-sized enterprises as well as industries under stress.

China's central bank this week cut the reserve requirement ratio (RRR) by 0.5 percentage points for eligible financial institutions to support the development of the real economy and reduce the comprehensive financing cost.

The reduction will lower the fund costs for financial institutions by around 15 billion yuan per year and guide financial institutions to actively use the funds released to strengthen support for the real economy.

"Currently, the growth rate of broad money and social financing scale basically matches that of nominal GDP," said Wen Bin, chief analyst at China Minsheng Bank, adding that it contrasts sharply with the massive stimulus policies by Western countries that have pushed up inflation.

For fiscal policies, extensive tax and fee cuts were implemented to ease burdens on businesses and strengthen market vitality.

China's tax and fee cuts totaled 910.1 billion yuan during the first three quarters of the year. During the 13th Five-Year Plan period, China's cumulative tax cuts and fees exceeded 7.6 trillion yuan.

In response to multiple challenges this year, including COVID-19, severe floods, rapidly rising commodity prices, and the tight supply of electricity and coal, authorities have rendered more direct and precise support to market entities.

Small and medium-sized enterprises in the manufacturing sector are permitted to defer certain tax payments for the fourth quarter, while small and micro enterprises severely impacted by the pandemic, floods and raw material price hikes can receive more lending support.

Market-oriented mechanisms, including establishing multi-level carbon trading markets and scaling up green financing, have been explored to achieve carbon neutrality.

"These structural policy tools help stabilize the economy and market players, making up for the lack of traditional policy tools that mainly focus on the overall liquidity," said Xu Hongcai, deputy director of the Economic Policy Commission with the China Association of Policy Science.

Aware of further challenges ahead for the Chinese economy to sustain stable growth, policymakers are set to walk a fine line between economic recovery and risk control.

Economic work next year should prioritize stability while pursuing progress, and macro policy should be prudent and effective, according to a meeting held Monday by the Political Bureau of the Communist Party of China Central Committee.

Meanwhile, China's central bank said in a statement that it will maintain reasonably ample liquidity, strengthen cross-cyclical adjustment and promote the consistency of macro policies for 2021 and 2022.