Premier Li calls on six provinces to lead growth

Chinese Premier Li Keqiang led an economic meeting on Tuesday in which six leaders of “economically strong provinces” spoke via video. Pictured, Li at a virtual World Economic Forum event in July 2022.

Xinhua News Agency | Xinhua News Agency | Getty Images

BEIJING — Chinese Premier Li Keqiang called on six provinces to take the lead in supporting the country’s growth after July data showed a broad-based slowdown.

Data on retail sales, industrial production and investment in fixed assets released on Monday beat analysts’ expectations and marked a slowdown from June. This comes as the Chinese economy grew by just 2.5% in the first half of the year.

“Now is the most critical time for the economic rebound,” Li said at a meeting on Tuesday, according to an English reading. He called for “resolute and swift efforts” to strengthen the foundations for recovery.

Much of that responsibility falls on six “economically strong provinces” which account for 45% of national GDP, according to the statement. He added that the six provinces also account for nearly 60 percent of the national total in foreign trade and investment.

Leaders from the coastal and export-heavy provinces of Guangdong, Jiangsu, Zhejiang and Shandong spoke via video during an economic meeting with Li on Tuesday, according to the reading. Leaders of the landlocked provinces of Henan and Sichuan also spoke.

The provincial municipalities of Shanghai and Beijing were not mentioned.

“Investments will accelerate in the six provinces as [the] the central government will provide [a] green light for major investment projects,” said Yue Su, senior economist at The Economist Intelligence Unit. She said provinces could even be assigned their own targets for measures such as jobs.

“Although there is no emphasis on the [national] GDP target, the Prime Minister still attaches great importance to the growth rate when discussing development [as] the key to solving all problems,” she said.

At the high-level Politburo meeting in late July, Chinese leaders indicated that the country could miss its GDP target by around 5.5% for the year.

They also said then that “provinces with the conditions to achieve the economic goals should strive to do so,” according to a CNBC translation from Chinese.

Above-average median growth

The six provinces highlighted at Tuesday’s meeting had set GDP targets ranging from 5.5% to 6.5%, for a median target of 5.75% growth. That’s according to CNBC’s calculations of figures released by state media.

In terms of real growth in the first half, that median was 2.65%, according to CNBC calculations of official data for the six provinces accessed through Wind Information. Provincial GDP growth rates ranged from 1.6% to 3.6% during this period.

I think the meeting reflects that policymakers are disappointed with July’s economic data.

Larry Hu

China Chief Economist, Macquarie

Tuesday’s meeting highlighted the importance of the six provinces for tax revenue.

The four coastal provinces account for more than 60 percent of all provinces’ net contribution to the central budget, according to the report. “They should fulfill their duties in this regard,” the statement said.

“I think the meeting reflects that policymakers are disappointed with July’s economic data,” Larry Hu, chief China economist at Macquarie, said in an email to CNBC. “In the meantime, they are increasingly concerned about the real estate sector.”

“As a result, they would like to give the economy some further momentum. The surprise PBOC cut on Monday is part of the momentum,” he said.

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The central bank unexpectedly cut two interest rates on Monday, suggesting that the People’s Bank of China will cut the prime rate on the main loan in about a week.

China’s economy has slowed this year, driven by Covid outbreaks and resulting trade restrictions. The deepening collapse of the massive real estate sector has also weighed on the economy.

Regarding real estate, Li only said that “economically strong provinces” should meet the needs of basic or improved housing conditions, according to the reading.

Instead, Li stressed provinces need to boost consumption, especially of big-ticket items such as automobiles, according to the statement.

Cars contribute more to growth

China’s premier called for more measures to support auto sales in June. Since then, related economic indicators have experienced one of the fastest growths.

Automotive production rose 31.5% year-on-year in July, official data showed. Auto exports jumped 64% in July from a year ago and helped spur better-than-expected Chinese export growth last month, customs data showed.

The official July retail sales report said auto sales growth slowed to a 9.7% year-on-year pace from 13.9% in June. Auto sales accounted for 10% of China’s retail sales in July, which rose 2.7% last month from a year ago.

“The combination of declining auto sales growth and auto production growth imply a likely inventory build-up in the auto sector,” Goldman Sachs analysts said in a report Monday.

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