Despite drop in official PMI, better tax revenues and spending hold out hope, experts say

China must continue to intensify macroeconomic policies and accelerate the implementation of a raft of pro-growth policies to stabilize the economy, experts said.

The country's macroeconomic policy support for growth stabilization will remain undiminished. The improvement of tax revenues will strengthen the sustainability of fiscal policy, and big-ticket government spending will continuously support a number of areas, including people's livelihoods and key infrastructure projects, said Lian Ping, chief economist at Zhixin Investment and head of the Zhixin Investment Research Institute.

Although China's prudent monetary policy space is squeezed in the short term, the country will still allow domestic factors to shape its policies and maintain relatively loose monetary operations, Lian said.

He shared his outlook on macroeconomic policies after the National Bureau of Statistics announced the official purchasing managers' index for China's manufacturing sector on Monday. The index fell to 49.2 in October from 50.1 in September, below the 50-point mark that separates contraction from expansion.

The decline was caused by factors such as multiple and sporadic COVID-19 cases in October, said Zhao Qinghe, a senior statistician with the NBS. He stressed that the foundations for China's economic recovery need to be further consolidated.

China will continue to implement a package of policies and their follow-up measures to shore up economic recovery, according to the decision made at a State Council executive meeting last week.

Efforts will be made to ensure policy implementation and further unlock policy effects, keep employment and prices stable, improve economic performance in the fourth quarter and keep major economic indicators within a proper range, it was decided at the meeting.

"China is likely to speed up both fiscal spending and use of funds raised through special bond issuances. Considering that economic data in October may fluctuate, we do not rule out the possibility that additional financial policies, such as further cuts to loan prime rates, the market-based benchmark lending rates of China, may be launched," said Wen Bin, chief economist at China Minsheng Banking Corp.

Wang Hao, a senior macroeconomic analyst, said the first batch of special local government bonds issued in advance is likely to be in place at the end of the fourth quarter. In addition, fiscal expenditure will gradually tilt toward technology and education.

As credit demand is still weak, China may further cut benchmark interest rates in November to help struggling companies ride out the tough period. Meanwhile, structural monetary policy tools may be more widely used to support the development of key industries, Wang said.

Apart from accelerating the implementation of fiscal policy measures, China should strengthen the administration of non-tax government revenues and speed up initiatives to end unjustified charges and fines levied on businesses, said Liu Chen, a researcher with the BOC Research Institute.

The country will also increase the use of structural monetary policy tools to ramp up support for the industries and companies hard hit by COVID-19. At the same time, it will take actions to prevent external shocks on domestic economy and maintain financial market stability, Liu said.

He advised the government to further optimize pandemic prevention and control measures, reduce the economic impact of COVID-19, provide transitional jobs to unemployed people and college graduates and offer vocational training in order to form a virtuous circle of improvement in expectations, consumption recovery and economic recovery.