00:00We can talk now to Gerard Lyons, who's a senior independent director and board member of the Bank of China in the UK.
00:06Welcome to the programme. Good to see you, Gerard. Thank you for joining us.
00:09So, we're hearing at this meeting something of an emphasis on stabilising employment, a more proactive fiscal policy.
00:16What do you make of the tone and the timing of this meeting?
00:22Well, the tone of the meeting was very measured.
00:24The Chinese economy in the first half of the year has done far better than many economists expected,
00:29but nonetheless, the economy still faces significant challenges, both at home and still from overseas because of the tariff issue.
00:37So, the timing of the meeting was particularly important, both given the current cycle facing those domestic challenges
00:42and also ahead of the five-year plan next year and the fourth plenum this October.
00:48Very importantly today, I felt, was the focus on employment, which is still stubbornly high in terms of youth unemployment,
00:55the focus on the need to boost consumption, and also the focus on involution, which is a buzzword in China,
01:02even though it's not talked about much outside.
01:05It was more policy discussion, though, wasn't it, rather than specific measures.
01:09From a global investor's perspective, what sort of signals is that sending out?
01:13Well, it's a very significant meeting because this time a year ago,
01:20the Politburo talked about the domestic competitive pressures in China.
01:24That's when they first used that word involution.
01:27The fear then was that prices were falling, deflation was taking hold,
01:32and if that continued, then the economic outlook would be far worse than it's proved to be.
01:36In fact, China has held up particularly well.
01:38What was very evident today was that the Chinese were going to take more measures to actually maintain domestic demand
01:45and also to try and address that competitive pressure that still exists within China.
01:50So it was very much a focus on keeping fiscal policy proactive, but also easing off slightly on monetary policy.
01:57They don't need to do everything now to help the economy.
01:59They can still keep some of their policy measures in reserve.
02:03So from an international perspective, the Chinese policy makers seem to be very much on the front foot.
02:09I want to ask you briefly just about this idea of involution.
02:12As you say, not something that's widely talked about outside of China.
02:15How much of a concern is that?
02:20It is a concern, very much the fact that President Xi Jinping himself has touched on the issue.
02:26Basically, the issue is this, that prices are falling.
02:29China still faces producer prices falling. Consumer prices are around zero.
02:34The worry is that if you have deflation, then people will stop spending because they expect prices will continue to be lower in the future.
02:43And it will deter firms from investing.
02:45A year ago, the concern was that that was taking hold.
02:48Now what was important today was that the authorities are going to try and address the measures that have led to this.
02:54Over-investment in certain areas and also over-investment by local authorities.
03:00So from a Chinese perspective, the measure is aimed at preventing deflation.
03:04It will allow some inflation back into the economy and that will help stabilise domestic demand.
03:10It's an issue more particular to China than other economies.
03:13Hence, the Chinese are focused on it less so than international investors looking at China.
03:19But the international investors looking at China, I think, will be encouraged.
03:22Fiscal policy has been front-loaded so far this year.
03:26And now monetary policy is less dovish than it was a few months ago because the economy has held up.
03:32But there's the ability for monetary policy as well as fiscal policy to help stabilise the economy more in the second half of the year.
03:39Gerald, it was great to talk to you today.
03:41Thank you so much for coming on the programme.
03:42That's Gerald Lyons from the Bank of China in the UK.
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