China is facing increasing pressure to implement economic stimulus measures as concerns about the global economy grow. Economists, both local and international, are calling for action to boost growth and address various challenges faced by the Chinese economy.
Call for Stimulus Measures
Liu Shijin, the former deputy head of the Development Research Center at the State Council, has proposed issuing at least 10 trillion yuan ($1.42 trillion) in ultra-long government bonds for investment in human capital. He emphasized the need for a comprehensive plan to revitalize the economy and expand domestic demand, rather than simply cutting interest rates.
The world’s second-largest economy has been struggling to recover from the impact of the Covid-19 pandemic, with a real estate slump and weak consumer confidence adding to the challenges. While exports have shown some growth, manufacturing and overall economic growth have been slower than expected.
Goldman Sachs recently reduced its annual growth forecast for China to 4.7%, citing the need for more demand-side easing measures to support the economy. The pressure to achieve the full-year GDP growth target of around 5% is increasing, prompting calls for additional stimulus measures.
Challenges in the Property Market
One of the key challenges facing China’s economy is the persistent slump in the real estate sector. Despite efforts to support the market, including subsidies and incentives for consumers, the property market remains a significant drag on economic growth.
Xu Gao, the chief economist at Bank of China International, highlighted the need for policymakers to address the issues in the property market to restore consumer confidence. He suggested that the government should consider bailing out property owners to stabilize the market, as current policies have not been effective in addressing the underlying problems.
The delayed delivery of pre-sold housing units has also contributed to the lack of consumer confidence in the property market. To address this issue, Xu proposed a more substantial intervention in the form of financial support to stabilize the sector.
Focus on Advanced Manufacturing and Technology
While the challenges in the property market persist, China’s top leaders have been emphasizing the importance of advancing manufacturing and technology capabilities. In the face of increasing restrictions on high-tech exports by the U.S., China is seeking to bolster its domestic capabilities in these key sectors.
The recent Politburo meeting signaled a cautious approach to policy stimulus, with a focus on achieving the GDP growth target of around 5%. The emphasis on advanced manufacturing and technology reflects the government’s long-term strategy to reduce reliance on traditional sectors like real estate.
Former People’s Bank of China governor Yi Gang called for proactive fiscal and monetary policies to combat deflationary pressures in the economy. However, analysts suggest that more decisive action may be needed to address the challenges posed by the current economic environment.
Local Government Constraints
Despite efforts to stimulate growth, China’s economy has shown slower-than-expected growth in key sectors like retail sales and industrial production. Local governments are facing fiscal constraints, limiting their ability to support infrastructure investment and other key areas of the economy.
Nomura’s Chief China Economist Ting Lu warned of a potential second wave of shocks to the economy, urging policymakers to focus on fiscal policies and reforms to address the challenges. The need for direct funding to stabilize the property market and alleviate the fiscal burden on local governments is becoming increasingly urgent.
In the short term, the focus remains on achieving the 2024 growth goals of around 5%. The government is confident that this target can be met, but it will require a concerted effort to address the underlying issues in the economy and implement effective stimulus measures.
In conclusion, China is facing growing pressure to implement economic stimulus measures to support growth and address key challenges in the economy. The focus on advanced manufacturing and technology, along with efforts to stabilize the property market and support consumer confidence, will be crucial in achieving the country’s economic goals. Policymakers must act decisively to navigate the current economic environment and ensure sustained growth in the coming years.