China’s Politburo Signals Greater Focus on Growth Amid Trade Standoff

(Bloomberg) -- China's Politburo signaled Tuesday that policy makers will focus more on supporting economic growth amid risks from a campaign to reduce debt and the trade standoff with the U.S.

The communique, which followed a meeting of the country's 25 most senior leaders led by President Xi Jinping, said the nation's campaign to reduce leverage will continue at a measured pace while improving economic policies to make them more forward-looking, flexible and effective in the second half of 2018. The external environment has “significantly changed” and the nation should roll out targeted measures to solve the key problem, according to state news agency Xinhua's report of the meeting.

Policy makers called for greater emphasis on infrastructure construction as part of efforts to repair weak links in the economy, a key part of Xi's signature supply-side reform that previously stressed cutting excessive capacity and debt.

“China's leadership faces an increasingly difficult economic landscape in the second half,” said Rajiv Biswas, Asia Pacific chief economist at IHS Markit in Singapore. “They're walking a policy tightrope between deleveraging to contain escalating debt while also trying to support small and medium-size companies being hit by the impact of the U.S.-China trade war.”

With little sign of the conflict with the U.S. abating, policy makers are taking steps to shore up slowing output growth. Ranging from tax cuts to central-bank liquidity injections, the steps have so far stopped short of broad-based fiscal or monetary stimulus. Growth in the world's second-largest economy is forecast to slow this year to 6.6 percent, in line with the official target of 6.5 percent.

The statement said China will allow fiscal policy to play a bigger role in expanding domestic demand and restructuring the economy, while pledging to maintain a prudent monetary policy stance, control the monetary supply and keep liquidity at a reasonable and sufficient level.

The meeting reiterated its stance on firmly curbing rising home prices, and stressed tailored property policies in different cities. It also vowed to further open the economy, and to study and roll out a batch of “useful, effective and significant” reform measures.

“It's consistent with the easing tone of the State Council meeting, but reiterated the long-run commitment on deleveraging and reform,” said Wang Tao, head of China economic research at UBS AG in Hong Kong. “The trade war is not the key problem referred to in the statement. Key problems are still high leverage and structural issues that need to be addressed.”

--With assistance from Winnie Zhu and Kevin Hamlin.

To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at yzhao300@bloomberg.net;Miao Han in Beijing at mhan22@bloomberg.net

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, Jeff Kearns

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