Fiscal policy pivots to demand stimulus

China's fiscal policy is moving away from its traditional focus on enterprise and production toward new priorities — addressing household needs, strengthening the social safety net and stimulating consumer demand, said an expert.

While the newly introduced childcare subsidy has captured public attention for its direct financial impact, the broader significance of the policy lies in what it represents — a strategic pivot toward "investing in people", said Luo Zhiheng, chief economist at Yuekai Securities.

The childcare subsidy, set at a standard 3,600 yuan ($501) per year for each child under the age of three, is available to all eligible children, regardless of whether they live in urban or rural areas, their ethnicity, region or whether they are the first, second or third children in the family.

"It's a key step forward, and we could expect further initiatives in a broader range of areas that are directly relevant to the lives of ordinary citizens, including pensions, healthcare and affordable housing," Luo said in an interview with China Perspective.

While chairing the ninth plenary meeting of the State Council earlier this month, Premier Li Qiang stressed that policymakers need to adapt to new social demands by investing directly in the people and channeling resources to serve pressing livelihood needs.

Take, for instance, the highly discussed issue of pensions. The basic old-age insurance level of rural and urban nonworking residents still remains modest, Luo said.

Though China pledged to raise the minimum basic old-age benefits for rural and nonworking urban residents by 20 yuan in the Government Work Report in March, the average monthly pension for this group is just slightly over 200 yuan.

"This can be further increased to stay on par with the level of subsistence allowances — around 600 yuan in rural areas and 800 yuan in urban areas," Luo said.

The coverage of the pension system, the adequacy of its payouts and the fairness of its distribution directly affect household consumption capacity and their willingness to spend, Luo added.

With the property sector slowdown and global uncertainty weighing on China's economic growth, stimulating household demand has become urgent.

In the first half of this year, key indicators such as sales area, home price and investment in the property sector have declined by around 30 to 50 percent compared to the same period in 2021, according to Luo.

"The future of China's real estate market has moved out of the risk of a hard landing," Luo noted. "It has entered a new stage of development with a longer cycle, a more moderate pace, but one of continued adjustment.

"Consumer confidence is increasingly tied to the well-being of the housing market," Luo said. "We're now at a point where the rental yield and the price-to-income ratio are gradually trending toward more reasonable levels, a positive sign that the market is on the path to a more sustainable equilibrium."

Moreover, policymakers could harness two key levers: increasing dividend payouts from listed companies and enhancing the transfer of State-owned enterprise profits to the state coffers to improve public welfare and bolster household consumption, Luo added.

In recent years, the annual economic trajectory has basically followed a U-shaped pattern, Luo noted.

"It is manifested in a good start in the first quarter, some downward pressure in the second quarter, a series of policies introduced around the third quarter and then an upward economic lift in the fourth quarter. This pattern is highly likely to continue this year," Luo said.