In the first half of the year, the Gross Domestic Product (GDP) grew by 5.5% year-on-year, accelerating by 1.0 percentage points compared to the first quarter. Looking at the industries, the primary sector grew by 3.7% year-on-year, the secondary sector by 4.3%, and the tertiary sector by 6.4%, with the tertiary sector's growth rate significantly higher than the overall economic growth rate. In the second quarter alone, the GDP grew by 6.3% year-on-year and by 0.8% quarter-on-quarter, indicating an overall improvement in economic performance. However, it is important to note that due to the impact of the pandemic last year, the GDP only grew by 0.4%, resulting in a low base. The current economic growth is still recovery-oriented. In the process of returning to a normalized economic operation track, it is essential to actively face the difficulties and challenges of post-pandemic recovery, maintain the continuity and stability of policies, ensure the necessary policy intensity, and accelerate the cultivation of new drivers of economic growth, but strong stimulus measures should not be implemented.

The key to the economic recovery and improvement still lies in the demand side. Final consumption expenditure was the largest contributor to economic growth in the first half of the year, driving economic growth by 4.2 percentage points, with a contribution rate of 77.2%, which is an increase from 66.6% in the first quarter. Domestic demand in our country continues to recover, and the contribution of consumption to economic growth is the highest in nearly a decade. In the first half of the year, the per capita disposable income of residents nationwide grew by 5.8% in real terms year-on-year, accelerating by 2.0 percentage points, which is 0.3 percentage points higher than the GDP growth rate. As income gradually recovers, consumption is expected to continue to maintain resilience.

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On the other hand, consumption as a whole is still in a weak recovery state. In June, the total retail sales of consumer goods grew by 3.1% year-on-year and by 0.23% month-on-month, with the month-on-month growth rate weaker than in previous years. In addition, looking at prices, the CPI (Consumer Price Index) in May and June only rose by 0.2% and 0% year-on-year, respectively, with a month-on-month growth rate of -0.2% for both, reflecting that domestic consumption is still weak and the recovery foundation is not solid. The economic recovery and improvement require further recovery on the demand side, especially through domestic demand to drive the recovery and development of the production side.

The main challenges faced by the economic recovery and improvement are as follows:

First, the internal driving force of economic recovery needs to be further strengthened, and the recovery may still take time. This is mainly because the impact of the pandemic over the past three years has been significant for market entities. For businesses, a short-term economic shock can be dealt with by suspending operations. As demand recovers, supply can also recover quickly, and the elasticity of supply to demand is relatively large. However, if the shock lasts for a longer time, market entities may not be able to sustain themselves and eventually exit the market. The cost of re-entering the market or starting anew is significantly higher. The damage to market entities will directly affect employment and the purchasing power on the demand side. Therefore, it should be recognized that the path to economic recovery after the pandemic is inherently slow. It is worth noting that although the current consumption growth is not strong, this achievement is hard-won and is in line with the overall economic operation.

Second, there is significant downward pressure on the real estate market. In the first half of the year, real estate development investment decreased by 7.9% year-on-year, becoming the main factor dragging down China's fixed asset investment. From the data, the marginal downward trend of the real estate market has not been reversed. At present, while adhering to the principle of "housing is for living in, not for speculation," what the real estate industry needs most is confidence and liquidity, mainly to avoid a more severe downturn.

Third, there is a contraction in external demand. Looking at the sub-indices of China's manufacturing PMI (Purchasing Managers' Index) in June, new export orders and imports were 46.4% and 47%, respectively, both decreasing by 0.8 and 1.6 percentage points from the previous month, reaching the lowest point since February this year. The external environment remains complex and severe, and the economic downturn pressure of overseas economies will have a significant negative impact on China's exports. In addition, the decline in international commodity prices may further drag down China's foreign trade.

Policy intensity still needs to be appropriate, sustained, and strengthened. The main direction of current macroeconomic regulatory policies should be to consolidate the achievements of economic recovery and to solidify the foundation for economic stability and improvement. Therefore, the policy intensity must still be appropriate, sustained, and strengthened. "Appropriate" means not implementing strong stimulus measures, "sustained" means maintaining the stability and continuity of policies, and "strengthened" means increasing the policy intensity in a timely and moderate manner according to the trend of economic operation.Fiscal policy should play a greater role, and the issuance of central government debt should be increased when necessary. The direction of fund use is crucial. To achieve economic recovery and sustainable growth, more support should be given to consumption and high-tech fields. The issuance of central government debt can be increased when necessary. The leverage ratio of China's central government is lower than that of major countries, providing space for the active fiscal policy to enhance its effectiveness.

Strengthening the coordination and cooperation between monetary policy and fiscal policy, and considering the appropriate reduction of reserve requirements. Most of China's national debt and local government debt are purchased by commercial banks. Reducing reserve requirements will increase the funds that commercial banks can freely use, thereby better supporting the issuance of national debt and local debt. The role of interest rate cuts in stimulating investment and consumption may be limited, as the interest rate elasticity of China's consumption and investment is not high at present. At present, the "income effect" of reducing interest rates is dominant. The household sector pays more attention to risk aversion than before. Interest rate cuts may reduce the income from residents' deposits, leading to a decline in household wealth income, prompting people to increase precautionary savings, and thus reducing current consumption. In addition, the revenue pressure on China's commercial banks has increased. Continuous interest rate cuts guiding the downward movement of LPR (loan market报价 interest rate) will narrow the interest spread between commercial banks' deposits and loans, especially likely to put greater pressure on the sustainable operation and risk prevention and resolution of small and medium-sized banks.