The direction of one country's economy during a period of time - up or 
down - is a result of a range of complex factors, which generally fall 
into two categories: structural factors and cyclical factors. The reason
 behind the great economic success China made in the past 45 years of 
reform and opening-up was down to both structural factors - reform and 
opening-up and cyclical factors - demographic dividend. 6park.com
As the 
contribution of the cyclical factors - mainly the country's demographic 
dividend - has started fading since 2011, China has been adopting 
investment-driven measures to offset the downward pressure on its 
economy and maintain stable growth, but the debt level in all sectors of
 China's economy has grown significantly correspondingly. 6park.com
Over 
the past 10 years, China has adopted countercyclical policies frequently
 to boost economic growth. Not only has it successfully achieved the 
goal of doubling per capita disposable income in 2020 despite COVID-19 
impacts, but has it also been very effective in promoting economic 
transformation and upgrading. In emerging industries such as new-energy 
vehicles, China has rapidly emerged as a global leader. 6park.com
China's 
economy has faced multiple pressures this year. In the past few months, 
the real estate market, foreign trade and other fields have been 
relatively weak, and many economic indicators have fallen short of 
expectations. The market hopes more economic policies could be adopted 
to stimulate economic growth, while also revitalizing the property and 
stock markets. 6park.com
In fact, China has introduced a series of policies
 in a timely manner this year which have played a positive role in 
stabilizing economic growth. More importantly, there are still ample 
tools in China's policy toolbox to resolve the temporary issues the 
economy is facing, such as the increasing local debts and the declining 
sentiment in the housing market. 6park.com
First, one must understand the 
difference between China's economic system and the Western economic 
system. China is a socialist market economy whereby public ownership 
plays a dominant role, while the West is a market economy with private 
ownership as the main body.  6park.com
This means that the scale of assets 
that the Chinese government can mobilize is much larger than that in 
Western societies. In addition to the world's largest state-owned 
enterprises, land, minerals, forests, water resources are all 
state-owned, and these can all become policy tools used by central 
authorities. That is to say, in addition to the policy tools commonly 
used by Western governments, which China also has, China has more policy
 tools that Western countries do not have. 6park.com
Secondly, China is at a
 different stage of economic development than Western countries. China 
is a developing country, and unlike other developing countries, China 
accounts for 30 percent of the world's manufacturing base. China has a 
strong commodity supply capacity and has the distinctive characteristics
 of the world's factory. Therefore, when the West is generally facing 
high inflationary pressure, China's PPI is still negative. This makes 
China's monetary policy more independent, which is why China can 
continue to cut interest rates in the context of Western interest rate 
hikes. 6park.com
Regarding interest rate cuts, many people are concerned 
that it will lead to the depreciation of China's currency. In fact, the 
yuan has so far outperformed nearly all developing countries' 
currencies. For example, in the past three decades, the average 
depreciation rate of the local currencies of developing countries 
against the US dollar has exceeded 90 percent, while yuan has 
appreciated against the US dollar. Therefore, China does not need to 
worry too much about moderate depreciation of the yuan, because moderate
 depreciation will also be beneficial to exports and, in turn, 
employment. 6park.com
Third, China's macro leverage ratio is not low, in 
fact close to the average level for developed economies, but the 
leverage ratio of the central government is very low, at about 21 
percent. The US federal government is more than 110 percent, and the 
Japanese central government is about 250 percent. Therefore, there is 
still a lot of room for the Chinese central government to increase 
leverage in the future. 6park.com
Generally speaking, it is not difficult 
for China to achieve its economic growth targets this year, but the 
government needs to improve the quality of expenditures, and fiscal 
expenditures should achieve the effect of improving quality and 
efficiency. 6park.com
In the short term, China can appropriately increase 
the issuance of government bonds in the second half of the year, while 
at the same time ramping up efforts to use quasi-fiscal policy tools. 
Monetary policy needs to match fiscal policy in terms of signals. If US 
inflation levels fall back in the second half of the year and the 
Federal Reserve stops raising interest rates, China's monetary policy may still have some room for lowering required reserve ratios, but there is not much room for lowering interest rates. 6park.com
In
 terms of preventing and resolving local government debt risks, the 
Political Bureau meeting of the CPC Central Committee held on July 24 
clearly stated that it is necessary to "formulate and implement a 
package of debt-clearing plan." In the short term, local debt costs can 
be reduced by extending debt, increasing the amount of refinancing 
bonds, and revitalizing state-owned assets through "equity finance." In 
the long term, the scale of treasury bonds issued by the central 
government can be increased, and the scale of special bonds can be 
reduced. By gradually replacing local government debt and implicit debt 
with special treasury bonds, the entire debt structure can be optimized. 6park.com
The
 Central Economic Work Conference at the end of last year proposed that 
"restoring and expanding consumption should be given top priority." This
 actually pointed out that, in addition to cyclical factors, the current
 economic downturn is also dragged down by structural factors such as 
insufficient effective demand. And this structural problem is related to
 China's long-standing model of promoting economic growth through 
investment and exports. 6park.com
Promoting consumption is fundamentally 
about increasing incomes, or reducing the burden on residents in debt 
expenditures, medical care, pensions, or education investments. 
Recently, the central bank has introduced measures to lower existing 
mortgage interest rates, which can indeed reduce residents' debt burden 
to a certain extent. 6park.com
At present, actual debt repayment pressure 
on China's households is higher than that of major developed countries, 
which is the core factor inhibiting the recovery of consumption. In the 
fourth quarter of 2022, the ratio of total required household debt 
payments to total disposable income of China's household sector was 
142.5 percent, and the proportion of disposable income used to repay 
principal and interest was 14 percent, which is higher than that of 
developed countries such as the US, UK, Germany, France, and Japan.  6park.com
Therefore,
 it is unrealistic to expect household leverage to continue to increase.
 Possible future measures include: First, to increase the income of low-
 and middle-income groups by continuing to promote the reform of the 
income distribution system. Second, to implement targeted policies to 
provide targeted income subsidies for the unemployed residents, those 
living on subsistence allowances and low-income groups.