Chinese Premier Li Qiang stated on Monday (August 18) that authorities would strive to achieve the full-year economic growth target of approximately 5 percent, emphasizing the continued stimulation of consumption and the protection of people's livelihoods.

In remarks broadcast by China's state broadcaster China Central Television, Li indicated that China would "remain calm and actively respond to various uncertainties" amid a "severe and complex external environment." These comments come against the backdrop of a temporary trade truce between the US and China, reached in mid-May and extended last week by a further 90 days. This truce has prevented US tariff rates on Chinese goods from returning to prohibitively high levels. However, Chinese manufacturers continue to face challenges with subdued domestic demand and factory gate deflation, impacting their profits.

Li stressed the need to strengthen domestic consumption and further stimulate the country's consumption potential by cleaning up restrictive measures and accelerating new growth areas such as services. He added that China should adopt "forceful" measures to consolidate the stabilizing trend in the country's housing market. He also underscored the necessity of making greater efforts to stabilize employment, ensure people's livelihoods, and guarantee overall social stability.

Key Indicators

Signal for Market/Industry: The Premier's statements signal a strong focus by the Chinese government on bolstering domestic demand as a pillar for economic growth. This could translate into increased government spending on consumer stimulus programs, easing of regulatory restrictions on consumption-related sectors, and support for companies facing demand headwinds. Businesses focusing on the domestic market, particularly in the services and retail sectors, may benefit from these policies.
Leading Indicators and Data Points: The 5 percent growth target reflects the government's commitment to ensuring economic stability amidst external challenges. Investors should monitor consumer spending indices, consumer confidence indices, producer price indices (PPI) indicating deflation, and China's labor market data.

Regional Perspective

China's commitment to stimulating consumption highlights the importance of the domestic market as a driver of growth. Despite external challenges such as trade tensions, the focus on boosting domestic spending is a strategy to insulate against external shocks. For China, stabilizing the housing market and employment are top priorities for maintaining social stability, aligning with broader growth objectives.

Analysis

Premier Li Qiang's remarks demonstrate a clear Chinese strategy to achieve the 5 percent annual growth target through domestic consumption-driven growth. While the trade détente with the US offers some respite, the challenges of weak domestic demand and factory gate deflation persist. The focus on clearing restrictions and stimulating new growth areas like services is a positive step. However, the success of this strategy will hinge on the effectiveness of concrete government measures to encourage spending, address factory gate deflation issues, and stabilize the housing market. Stability in employment and livelihoods is crucial for maintaining consumer confidence, which is vital for sustained consumption growth.