China is facing multiple economic challenges in the second half of this year, but according to the First Institute of Finance and Economics, there are three major risks for the world’s second largest economy.

The institute released the “2022 China Macroeconomic Semi-annual Report” on July 27. It states that the COVID-19 epidemic, the loss of confidence in the real estate market, and unemployment among young people are the outstanding risks facing China’s economy.

According to the report, the negative impact of the Covid epidemic on the economy will not disappear in the short term, and Chinese people’s consumption and corporate investments will be subject to restriction measures.

Further, multiple risk events in the real estate industry have dampened residents’ confidence in purchasing houses, which is not conducive to the healthy development of China’s real estate market.

In addition, high youth unemployment is a destabilizing factor in society. If there is insufficient confidence in future expected income, it will affect domestic consumer demand.

China is also struggling on the road to economic recovery as the U.S. Federal Reserve’s rate hike has raised doubts about economic recession, which will have a negative impact on the global economy.

The institute also put forward a number of policy recommendations.

First, for low-risk areas of the Covid epidemic, testing and containment measures will be relaxed in a targeted manner. 

At present, the effective period of PCR testing is 48 or 72 hours. It could help detect and cut off the epidemic in a timely manner, but it also limits the scope of residents’ activities, which has a negative impact on overall consumption and production.

For the sake of sustainable economic development, the report suggests that the time limit for PCR testing can be relaxed on a trial basis. For example, for low-risk areas with no new outbreak within one month, the time limit for PCR testing can be extended to 7 days.

In addition, it is necessary to strengthen the research and development of vaccines and strengthen the construction of public medical systems.

The report also recommends expanding consumption-stimulating policies, such as tax relief for merchants that launch preferential shopping activities, encouraging financial institutions to introduce consumer credit incentives, or issuing digital yuan to specific households and small businesses in pilot cities.

The institute stressed that policies must resolve real estate market risks and restore market confidence. 

Regarding the protests against unfinished projects in some places, the institute recommended that local governments establish a special real estate bailout fund, and coordinate with the developers, banks, and consumers to settle the chaos. 

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