In the first half of 2019, China's economic growth slowed from 6.4 percent in the first quarter to 6.2 percent in the second quarter, and it faces increasing downward pressure.

At present, the domestic economy has encountered many challenges. The structural distortion of investment brings growing risks, because the growth rate of investment in the manufacturing sector is generally declining, while the growth rate of real estate investment is rising. Besides, the export performance in the first half of the year was not good, and it will continue to be under pressure in the second half. Moreover, industrial enterprise profits reveal negative growth, adding pressure on business operations. In addition, the financial difficulties of enterprises remain to be alleviated as their problems securing medium and long-term financing still exist, extending their turnover time of funds.

Yet despite all this economic downward pressure, inflation is near its highest in recent years and the exchange rate for the renminbi remains stable. Therefore, there is huge space to adjust the following policies.

The Chinese authorities recently emphasized that real estate should not be used as a short-term stimulus for the economy. At the same time, they also pointed out that various approaches should be applied in a bid to expand consumption. This indicates that under both domestic and foreign pressure, macroeconomic policies will still focus on sustainable development and structural optimization.

On the other hand, consumption expansion and releasing consumption demand should take reform as a starting point. The Chinese economy can seek new growth points from the dividends of reform. The Chinese economy experienced increasing downward pressure once before in recent decades, with the shock waves of the global financial crisis. But the stimulus measures implemented then are different from what is required this time when the Chinese government is taking a long-term view and focusing more on structural and systematic factors.

The Chinese authorities have said that this time, financial supply-side structural reform will be advanced and financial institutions will be encouraged to increase medium-and long-term financing to the manufacturing industry and private companies. Compared to last year, the financing difficulties faced by the manufacturing industry and private enterprises have improved significantly in the short term. But medium-and long-term financing for manufacturing and private enterprises is still an issue. It negatively affects the operating efficiency of manufacturing companies and private enterprises, and also inhibits their enthusiasm for fixed assets investment.

Correspondingly, the concept of stabilizing investment in the manufacturing sector, raised by the Chinese authorities, was announced in response to the weak trend of investment in this sector in the first half year. In order to change the situation, a good starting point would be to accelerate the supply-side structural reform of finance, combined with increased medium-and long-term financing for manufacturing and private enterprises by financial institutions.

In terms of people's livelihoods, the problem is also the lack of new growth drivers for the economy. But two measures mentioned by the central authorities in July are worth attention. Some projects should be improved with urgency in order to enhance people's quality of life, for example, the upgrading of old urban residential areas, parking lots and cold storage facilities for the logistics chains in urban and rural areas are also commercial events with cash flow yield. In the past, these shortcomings were a result of problems in administrative control, department coordination and incentive mechanism. So these supporting policies are more about the system reform and the guidance of market funds.

Stabling market supply and price were also stressed. The rising price of pork and major fruits has affected residents' daily life. To deal with this problem, besides supporting and stabilizing domestic agricultural production, opening up to foreign products with high quality and low cost would be helpful, so as to ensure supply and stabilize domestic prices.

The author is director of the International Development Department of the Institute of World Economics and Politics at Chinese Academy of Social Sciences.

The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.

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