China's Economic Outlook: Gerard Lyons on Employment, Fiscal Policy, and Involution

CGTN Europe

Gerard Lyons, one of the UK’s leading economists and Senior Independent Director and Board Member of Bank of China (UK), spoke to CGTN Europe and discussed the recent Chinese policy meeting’s emphasis on stabilizing employment and boosting consumption.

Transcript

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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