HONG KONG, July 26 (Reuters) - China's leadership pledged at a key Communist Party meeting this week to support the economy through a "tortuous" post-pandemic recovery, but offered very little detail on specific measures, causing mixed feelings among investors and economists.
ADDITIONAL STIMULUS ALMOST GUARANTEES CHINA WILL REACH ITS 2023 GROWTH TARGET. SO WHY ARE MANY ECONOMISTS STILL UNDERWHELMED?
The goal of growing at about 5% this year was always seen as easy to reach due to favourable base effects from one of China's worst years in half a century. Also, that level looks less impressive given China invests about 40% of its GDP per year - twice what the United States invests.
After a strong start of the year since COVID-19 restrictions were removed, the world's second largest economy barely grew in April-June, sparking worries it may be entering a new era of much slower growth and even Japan-like "lost decades" of stagnation.
WHAT ARE THE KEY CONCERNS ABOUT CHINA'S ECONOMY?
The main worry is the slowdown is more structural than cyclical and requires significant political will to change course on policies that have proven spectacularly successful for decades but now generate more debt than growth.
Accounting for about a quarter of economic activity, the overextended property sector can no longer act as a key driver of growth, but allowing the bubble to deflate rapidly could destabilise the financial sector and the real economy.
Another long-standing structural imbalance is China's household consumption, which remains among the smallest contributors to GDP in the world. Fixing it, economists say, requires transfers to the household sector.
Options include government-funded consumer vouchers, significant tax cuts, encouraging faster wage growth, building a social safety net with higher pensions, unemployment benefits and better, and more widely available public services.
No such steps were flagged in the politburo readout.
They would require indebted local governments to renounce revenue and increase expenditure, forcing the national government in Beijing, which has spent decades centralising power, to transfer resources to cities and provinces and take on some of their debts.
Encouraging higher wages requires unleashing the private sector from tight Communist Party controls, as well as boosting workers' bargaining power. It would also erode the export competitiveness of a sprawling manufacturing sector.
Another headache for the Communist Party is youth unemployment surpassing 20%. The promise of prosperity has encouraged younger generations to study for advanced economy jobs, rather than the lower-end work available in the industrial and services sectors.