Wang Tao: Consumption is not strong enough, employment, income, and property market expectations are all related

China Business News' "Chief Countermeasures" conducted an exclusive interview with Wang Tao, head of Asian economic research and chief China economist at UBS. Wang Tao provided insights into various aspects of China's economy, including GDP growth, real estate, consumption, monetary policy, and fiscal measures. Economic Growth in the First Quarter In the first quarter, China's GDP grew by 5.3% year-on-year, significantly stronger than expected. The quarter-on-quarter growth accelerated from 4.9% in the fourth quarter of last year to 6.6% (seasonally adjusted quarter-on-quarter annualized growth rate). The first quarter showed a good start, raising market expectations for subsequent economic performance. However, economic momentum began to weaken significantly in April, impacting market sentiment. UBS believes a similar downturn is less likely this year. Reasons for the March Slowdown China Business News: Mr. Wang, the first quarter data exceeded expectations, but the main highlights were concentrated in January and February. Why did March begin to slow down? Wang Tao: The data shows a slowdown in March due to a high base in March last year and the impact of the Spring Festival, which boosted January and February figures. Many families reunited for the first time since the pandemic, leading to accumulated demand. When averaged over several years starting from 2019, March's growth is relatively stable compared to January and February. Real Estate Market Outlook China Business News: Real estate remains a significant drag on economic growth. What policy suggestions do you have for the future? Wang Tao: Policies to support real estate are still needed. The next few months will be critical. It’s important to provide more credit support to developers to avoid large-scale defaults, which could erode buyer confidence. Additionally, relaxing purchase restrictions and lowering down payment standards for second mortgages can help. Further liberalizing the household registration system in large cities could also boost housing demand. Financial Support for Real Estate China Business News: Is it necessary for the central bank to provide financial support for the property sector? Wang Tao: It’s not about providing unlimited support but about coordinated efforts from the central bank, local governments, and commercial banks. Financial support for guaranteed-delivery buildings has been effective since 2022, and the whitelist mechanism can be expanded to provide more support through policy or commercial banks. Consumption Trends China Business News: The consumption of goods has declined compared to the service industry. What is the future trend of consumption? Wang Tao: Service consumption is recovering rapidly post-pandemic, especially boosted by the Spring Festival activities. However, overall consumption is still weak due to employment, income, and property market expectations. Sustained growth in these areas is crucial for future consumption trends. Monetary Policy Outlook China Business News: What adjustments do you foresee in monetary policy? Is there room for lowering interest rates and reserve requirements? Wang Tao: Given the strong first-quarter data, expectations for interest rate cuts have declined. While the U.S. economy's performance affects our monetary policy, China should focus on its own needs. Despite removing our prediction for a cut in the MLF policy interest rate, there is still room for rate cuts if necessary. The main issue now is weak credit demand, which may require more fiscal support. Fiscal Policy and Special Government Bonds China Business News: What measures should be taken to further implement fiscal policies, such as ultra-long-term special government bonds? Wang Tao: The issuance of ultra-long-term special government bonds is a positive step, providing more support for infrastructure investment, especially given local government financing challenges. It is crucial to distribute these funds quickly and possibly expand the scale next year. Quantitative Easing Prospects China Business News: Is there a possibility for Chinese-style quantitative easing this year? Wang Tao: I don’t expect quantitative easing this year. The government has emphasized not adopting overly loose policies, and the first-quarter data has been positive. The current issue is not the lack of financing projects but weak credit demand due to the real economy's weaknesses. Second Quarter Economic Outlook China Business News: What is your outlook for the second quarter and the first half of the year? Wang Tao: Last year, the economy weakened after a strong first quarter due to real estate declines and tightened fiscal expenditures. This year, government spending should be more stable, supported by special government bonds. While real estate remains a risk, we expect more than 5% year-on-year growth in the second quarter due to a low base effect from last year. For the full year, we anticipate a 4.9% growth rate, close to the target of about 5%. Source: China Business News