China Flags Supply Chains, Population as Top Policy Priorities

(Bloomberg) -- China is expected to roll out new policies to protect supply chains and boost its birth rate, after President Xi Jinping led a high-profile meeting that established these areas as top economic priorities.

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Economists at Goldman Sachs Group Inc. and Oversea-Chinese Banking Corp. say the government could announce new specific measures on how to address those challenges in coming months, including possible subsidies for manufacturing and changes to education policies.

China has become increasingly alert to supply chain security risks amid a US push to cut it off from advanced chip technology, as tensions flare with Washington. Adding to those geopolitical economic headwinds, China’s population started shrinking last year for the first time in six decades, signaling a demographic crisis. The nation’s workforce has also fallen by more than 41 million people in the past three years.

The Central Financial and Economic Affairs Commission highlighted industrial security as “the priority of priorities,” according to a readout of the meeting on Friday. Officials also vowed to step up efforts to achieve core technology breakthroughs as part of efforts to maintain strategic advantages in development and international competition.

Top officials also called for measures to address the nation’s falling birthrate. “Population development is an issue key to the rejuvenation of the Chinese nation,” Xi said at the meeting, the official Xinhua News Agency reported. Authorities will take measures to stabilize the labor participation rate, optimize the quality and structure of the labor force, and ensure its ample supply and reasonable distribution, according to the statement.

“The statement demonstrated policymakers’ goal in the next few years, and we might see other party/government institutions roll out more concrete policy measures under the guidance of this statement,” Goldman Sachs Group Inc. economists including Maggie Wei wrote in a Monday note.

The Goldman economists also said policymakers could step up credit support and government subsidies for manufacturing upgrading and innovation in the coming months, and increase trade ties with other economies.

“The focus on both industrial policy and demographic challenges aims to boost China’s long-term productivity and competitiveness,” Tommy Xie, head of greater China research at OCBC Bank, wrote in a Monday note, adding that more health and education related policies to address the demographic challenges would likely follow.

Education stocks traded in mainland China jumped on Monday, helping send the benchmark CSI 300 Index up by as much as 1.3%, leading advances in Asian shares.

The Central Financial and Economic Affairs Commission, which is headed by Xi, is the ruling Communist Party’s top economic policymaking body. Friday’s meeting marks the group’s first gathering since October’s leadership reshuffle, and was attended by Premier Li Qiang, the commission’s deputy director. Xi’s chief of staff Cai Qi and Ding Xuexiang, a vice premier, were also present as members of the group.

The officials also promised to “treasure and take care of” entrepreneurs as they aim to build world-class companies and rely on the business world to make innovations.

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