China's government may have few remaining remedies for declining economic growth as it faces the combined pressures of U.S. tariffs and the domestic slowdown.
Regulators have already broken through one major policy barrier by allowing the value of the yuan to drop below seven to the U.S. dollar on Aug. 5, slipping under the psychological threshold for the first time since 2008.
The surprise devaluation sparked a debate over whether the currency was dragged down by external forces or driven down from inside in an attempt to soften the sting of new 10-percent tariffs on U.S. $300 billion (2.1 trillion yuan) of goods that were threatened to take effect Sept. 1.
In a possible sign that the tariff conflict could ease, U.S. Trade Representative Robert Lighthizer announced last week that some items would be removed from the "List 4" of threatened tariffs while others would be delayed until Dec. 15.
China's response has been largely negative. The government has threatened "necessary countermeasures" if the remaining listed tariffs are imposed on Sept. 1.
While the U.S. Treasury Department has charged China with currency manipulation, the People's Bank of China (PBOC) has argued that the weakening of the yuan was "a reflection of market supply and demand."
In an online statement, PBOC Governor Yi Gang said it would "not use the exchange rate as a tool to deal with external disturbances such as trade disputes."
Some economists have been skeptical, both of the claim and the effectiveness of the tactic.
"The PBOC has effectively weaponized the exchange rate, even if it is not proactively weakening the currency with direct FX (foreign exchange) intervention," said Capital Economics senior China economist Julian Evans-Pritchard in a research note cited by CNBC.
"Devaluation was overdue and avoided due to fear of capital flight. They can't devalue fast enough to match tariffs so, if it's a weapon, it's a poor one," Derek Scissors, resident scholar at the American Enterprise Institute in Washington, told RFA.
Defending the yuan may only have risked breaking through another psychological guardrail, the PBOC's forex reserves, which have hovered barely above the U.S. $3-trillion mark since dipping below the limit in January 2017.
But even before the surprise devaluation, China's economic policy statements were notable for the options that were ruled out and ruled in.
China decided against lowering interest rates, declining to match the U.S. rate cut on July 31. The PBOC said its stand was based on inflation, not capital flight, concerns.
"A cut in interest rates is mainly intended to address deflation risks, but China is seeing a modest inflation," Yi told Caixin magazine.
Alternatives to interest rate cuts
Economists close to the bank also argued against interfering with a long-planned interest rate-setting reform, which is intended to make bank lending more responsive to market forces and lower financing costs for smaller businesses.
On Saturday, the PBOC unveiled the measure to replace benchmark interest rates with a "loan prime rate" mechanism to guide a wider range of banks in making new loans. But the plan seemed to highlight the limits on the PBOC's policy options.
"Rather than slash interest rates, which policymakers fear could stoke more capital outflows, Beijing has instead turned to reform of the interest rate mechanism to lower real lending rates for borrowers," The Wall Street Journal said.
Following meetings in July of the Political Bureau of the Communist Party of China (CPC) Central Committee and the cabinet-level State Council, plans for the second half of the year also excluded the possibility of pumping funds into the property market to provide an economic boost.
"The long-term management mechanism of the real estate sector should be implemented and the industry will not be used as means to stimulate the economy in the short term," the official Xinhua news agency quoted the Politburo as saying.
In sticking with President Xi Jinping's dictum that "housing is for living in, not for speculation," policymakers may have avoided signaling that this year's economic challenge is as serious as that of the global crisis of 2008, when the government unleashed a 4-trillion yuan (U.S. $567-billion) spending plan.
Aside from accentuating the gap between rich and poor, the loose lending for infrastructure and property development has left China with a legacy of environmental damage and debt.
The property sector is awash in unpaid debt obligations, known as commercial acceptance bills, The New York Times reported on Aug. 7.
By the end of the second quarter, outstanding loans to the property sector had grown 14.6 percent from a year earlier to 11.04 trillion yuan (U.S. $1.56 trillion), the PBOC said.
Still, Scissors suggested that the Politburo's decision may not be its final word on stimulus.
"I'm guessing the property market is back on the table if List 4 is applied, in order to boost sentiment," he said in a comment before the partial tariff postponement last week.
Others have suggested that China's debt-backed investment sprees have brought diminishing returns in terms of economic growth over the past decade, making another unnecessary building boom a choice of last resort.
Instead, policymakers have opted for a series of targeted measures and softer remedies that seem unlikely to have a major impact.
"As the Chinese economy faces new risks and increasing downward pressure, the country should focus on long-term trends and key issues so as to turn crises into opportunities," the Politburo said.
The policy statements devoted an inordinate amount of attention to details of initiatives for the cultural and tourism sectors, striking a sharp contrast with previous promotion of industrial investments.
The State Council "called on local authorities to cut or exempt ticket prices of scenic areas, with nighttime catering, shopping, and performances encouraged," Xinhua reported.
"The Internet Plus model will be applied to better facilitate consumption in culture and tourism," said the State Council, citing Premier Li Keqiang's effort to extend enhanced internet applications into various industries.
"Activities such as cultural and tourism consumption promotion seasons will be carried out and new models of tourism such as yacht and cruise tours will be supported," it said.
"Tourism consumption is a growth driver with a big potential, particularly in boosting consumption and improving people's livelihood," Li said.
The focus on the soft sectors left the impression that policymakers were casting about for solutions after ruling out strategies that had run out of steam in the past.
The recommended growth remedies may be seen as a measure of either innovation or desperation among policymakers.
"It is unusual for the Politburo conference to make a specific deployment on boosting domestic demand," said Liu Xuezhi, a Bank of Communications economist, according to The Australian Financial Review.
"This shows increasing pressure on weak domestic demand.
Consumption is the focus of expanding domestic demand and it is expected policies to boost expenditure will be announced shortly," Liu said.
The push for consumption suggests that domestic demand may not be the powerhouse that the government claims. Officially, consumption contributed 60.1 percent of China's gross domestic product growth in the first half of the year.
Promoting the ‘nighttime economy’
Official figures are also bullish on culture and tourism sector growth.
First-half revenue of the culture sector and related businesses rose 7.9 percent from a year earlier to 4.06 trillion yuan (U.S. $577.8 billion), the National Bureau of Statistics (NBS) said, based on a survey of enterprises with revenue of at least 20 million yuan (U.S. $2.8 million).
The sector includes news and information services, where revenue of 299.7 billion yuan (U.S. $42.6 billion) climbed 25.1 percent, Xinhua said.
For tourism, Xinhua relied on data from the China Tourism Academy, which reported overseas spending of U.S. $130 billion (913 billion yuan) in the first half, up 13 percent.
Revenue from domestic tourism gained 13.5 percent, reaching 2.78 trillion yuan (U.S. $395 billion), the academy said.
Scissors suggested that the government's main concern with the two sectors is related to the potential loss of jobs.
"There's no aggregate employment problem, and it's impossible to dig deep into official jobs statistics because they're falsified to show success," Scissors said.
"But if the central government sees a sector or provincial jobs shortage, that's where they will try to stimulate, even if it seems small in macroeconomic importance," he said.
In another unusual push for consumption, China megacities have promoted the "nighttime economy" at the Politburo's urging by encouraging late-hour food service, shopping, and entertainment events.
On Aug. 7, the southern coastal city of Guangzhou issued a map of nighttime "commercial clusters" to spur the economy, Xinhua reported.
Last week, the Beijing Municipal Commerce Bureau announced plans for the capital's "first four iconic nighttime economy circles" and extended nighttime hours at the national museum, Xinhua said.
Shanghai also announced it would cut ticket prices for events in its upcoming international tourism festival.
Nighttime catering consumption rose 47 percent from a year earlier in 2018, Xinhua said.