China has leveraged a variety of policies to offset downward economic pressure and address structural challenges, securing a robust start of this year with accelerated growth in retail sales, investment, and industrial output.

China's retail sales of consumer goods rose by 5.5 percent year on year in the first two months of 2024, picking up from an increase of 3.5 percent in the same period of 2023.

Fixed-asset investment also saw a notable uptick, growing by 4.2 percent year on year, quickening from the 3 percent increase in 2023. Furthermore, value-added industrial output rose 7 percent year on year during the January-February period, accelerating from the rise of 6.8 percent registered in December 2023.

China's economy began the year on a positive note, and the country has the confidence, capabilities, and conditions to meet this year's economic and social development targets, said Zheng Shanjie, head of the National Development and Reform Commission.

The country's macroeconomic policy mix bolsters the improving data and increasing confidence in China's economic outlook, which strategically addresses both short-term challenges and long-term structural issues within the economy.

FISCAL AND MONETARY POLICIES

According to the Ministry of Finance, China vowed to continue to implement a proactive fiscal policy this year and appropriately enhance its intensity.

Notably, the issuance of ultra-long special treasury bonds has drawn widespread attention. These bonds will be used to implement major national strategies and build up security capacities in key sectors, with an initial allocation of 1 trillion yuan (about 140.95 billion U.S. dollars) for 2024.

Tax and fee reduction incentives will persist this year and be pivotal for business support. Last year, tax refunds, as well as cuts and deferrals of taxes and fees exceeded 2.2 trillion yuan.

Priorities of this year's tax policy include fostering scientific and technological innovation and bolstering the manufacturing sector. Measures include enhanced pre-tax deductions for enterprise research and development costs and tax relief for technology adoption.

On the monetary front, Pan Gongsheng, governor of the People's Bank of China (PBOC) emphasized that "China has a rich monetary toolbox and there is still ample policy headroom."

In January, the PBOC announced a 0.5-percentage-point cut in the reserve requirement ratio (RRR) for financial institutions, releasing around 1 trillion yuan of long-term liquidity into the market.

Furthermore, China cut the over-five-year loan prime rate by 25 basis points in February to 3.95 percent. The move marked the most significant drop in recent years and reflected the country's efforts to reduce comprehensive financing costs.

Pan said in March that the average RRR of China's entire banking sector is 7 percent, and there is still room for further RRR cuts.

The central bank also underscored the use of structural monetary policy tools, including a special relending facility worth 500 billion yuan to support sci-tech innovation, technical transformation and equipment renewal.

FOSTERING NEW ENGINES

China unveiled a range of policies in the first quarter to boost investment and consumption and foster a better business environment.

According to this year's government work report, China vows to cultivate new growth drivers, such as biomanufacturing, the commercial space industry, and the low-altitude economy.

In the low-altitude economy sector alone, the market size is estimated to surge from over 500 billion yuan in 2023 to 2 trillion yuan by 2030 as the country accelerates the development of unmanned aerial vehicles for tourism and logistics activities, among other uses.

Moreover, China has unveiled plans to facilitate equipment renewal and encourage consumer goods trade-ins. This initiative spans sectors such as industry, agriculture, construction, transportation, education, culture, tourism, and medical care, presenting an expansive market opportunity estimated to exceed 5 trillion yuan annually.

China has introduced guidelines to establish around ten high-level industrial parks to leverage the potential of the silver economy. Additionally, efforts are underway to develop innovative products like nursing and housekeeping robots.

Meanwhile, China is actively promoting the sales of new energy vehicles in rural areas by ramping up efforts to build more charging facilities in the countryside.

China has introduced new rules on consumer finance, raising access thresholds for consumer finance companies in a bid to strengthen regulation and bolster consumption growth.

China proposed 24 measures in an action plan to promote high-level opening up to create a better business environment. The country vowed to further shorten its negative list for foreign investment and launch pilot programs to relax foreign entry thresholds in scientific and technological innovation.

With an economic growth target set at around 5 percent for 2024, China's policy mix aims to synergize efforts in stabilizing the economy and fostering new quality productive forces. More can be expected to enrich the policy toolbox further in the foreseeable future.