China's policy package gradually pays off as economy gains momentum

China's policy package aimed at steering the economy back on track is starting to pay off and aiding a gradual recovery in growth momentum, while authorities and analysts call for continuous support to counter economic headwinds.

Latest official data pointed to upticks in key economic indicators such as foreign trade, industrial output and retail sales in May, after the government rolled out intensive pro-growth policies and the overall epidemic situation improved.

"With the COVID-19 impact wearing thin, major economic indicators showed marginal improvements in May," said Meng Wei, spokesperson for the National Development and Reform Commission, noting that the recovery on both the supply and demand side still faces many challenges.

Deeming the current situation as a key point to determine the economic trend of the whole year, Meng said that the commission will spare no effort to promote the implementation of preferential policies to remove the bottlenecks restricting economic circulation.

In May, China's exports jumped by a better-than-expected 15.3 percent year-on-year, while industrial output grew 0.7 percent from a year earlier, rebounding from a 2.9 percent decline in April. Retail sales was down 6.7 percent year-on-year, compared with the 11.1-percent decline in April, official data showed.

The positive change came after a raft of actions taken by various levels of government since May.

The State Council unveiled 33 measures to stabilize the economy last month, covering policies on investment, consumption, food and energy security, industrial and supply chains, as well as people's livelihoods.

Tax refunds and fee cuts were introduced, social security contribution payments were deferred, and industrial and supply chains were unsnarled. Infrastructure spending has been accelerated to boost investment.

Local governments responded rapidly by working out region-specific moves, ranging from granting consumer vouchers to easing restrictions on real estate buying and subsidizing vulnerable businesses, to reduce COVID-induced impacts on the economy to a minimum.

"The raft of proposed policies is extensive, pertinent and prompt," said Wang Yifeng, an analyst at Everbright Securities.

Shanghai, once hit hard by the virus, launched an action plan to expand subsidies for enterprises' epidemic prevention and disinfection and to reduce rent, property tax and urban land use tax for qualified firms, among other measures.

"The tax refund received by the outlets of convenience store chain Bianlifeng in Shanghai before the offline business had provided us with more capital to prepare sufficient commodities," said Li Zheren, who is in charge of the financial affairs of the company.

Shanghai's policies provided enterprises with timely support to tide over difficulties, said Wang Peng, an associate professor with the Renmin University of China, suggesting that local policies should reflect the characteristics of different regions and be targeted.

Beijing decided to halve the vehicle purchase tax for passenger cars with a VAT-exclusive price of no more than 300,000 yuan ($44,827.6) and an engine of 2.0 liters or less that are purchased between June 1 and Dec 31 this year to revive the bulk consumption.

Hainan province, which is striving to become the country's largest free trade port, granted 20 million yuan of vouchers to boost offshore duty-free shopping and over 100 million yuan of vouchers to support the recovery of tourism and catering sectors.

In East China's Zhejiang province, supportive measures include advancing major water conservancy and transportation infrastructure projects, building 1,200 km of new urban gas pipeline network and invigorating private investment.

In the second half of the year, investment promoted by pro-growth policies will be vital to stabilizing economic growth, said Li Chao, chief economist of Zheshang Securities.

Analysts point out that the country's pro-growth policies are not just helpful for immediate economic recovery, but will also benefit long-term growth by prioritizing structural adjustment and sustainability.

China will support private investment and take forward projects that deliver multiple effects as part of the efforts to better spur effective investment, consumption and employment, according to an executive meeting of the State Council Wednesday.

It is crucial to grasp the window of opportunity and conduct range-based regulation, said the meeting, adding that stronger policy measures will be taken whenever and wherever needed to stabilize economic activity, without resorting to excessive money supply or compromising long-term interests.

Supporting private investment, which are flexible and effective, can better support domestic demand, optimize the industrial structure and promote high-quality development of the economy, said Gao Ruidong, an economist at Everbright Securities.

Economic recovery still faces many difficulties and challenges, said Fu Linghui, spokesperson for the National Bureau of Statistics, calling for more efforts to ensure the implementation of pro-growth policies to promote sustained economic recovery.