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China’s Reluctance to Employ Radical Stimulus Measures for Economic Boost


Sep 5, 2023

China’s economy is facing challenges as the government is at risk of missing its growth target for the year. However, unlike in previous crises, China is not implementing a massive stimulus package. This cautious approach is driven by the government’s desire to control debt, reduce the property sector’s influence on the economy, and avoid Western-style cash handouts to consumers.

The main reason for China’s economic troubles is the slump in the property sector. Beijing implemented policies to reduce dependence on real estate, leading to a decline in housing sales and property investment. This downturn in the property market has also affected local governments, which rely on revenue from housing and land sales, resulting in fiscal contractions and reduced spending.

So far, Beijing has taken steps to address the economic challenges. They have rolled back financing restrictions for property developers, lowered mortgage costs, and encouraged second-property purchases. The government has also focused on supporting private-sector firms, boosting local government funding, and strengthening the stock markets. On the monetary policy side, the central bank has cut interest rates and supported the yuan.

There is still more that Beijing could do. Economists suggest that the government could increase the issuance of its own debt and use the funds for public spending. This action could be similar to the stimulus packages implemented during the global financial crisis or the pandemic. The use of central government funds at a large scale, known as the “bazooka” option, could also be considered. This could involve providing income directly to households or businesses or buying up housing to increase prices.

However, Chinese leaders are reluctant to pursue these options. They prioritize “quality” growth over the pace of economic expansion and aim to avoid overreliance on the property sector and excessive local government debt. There are concerns about inefficiency and corruption in distributing money, and leaders prefer to support the corporate sector through tax cuts to boost consumption. Targeted stimulus remains the preferred approach.

The impact of China’s economic challenges extends globally. A weaker GDP trend in China affects other countries, with some, like Australia and Chile, being more heavily affected due to their dependence on exporting raw materials. Foreign businesses operating in China may also face slower revenue growth and lower stock valuations. Chinese tourists may spend less in other countries, and there could be political consequences and reduced global influence for Beijing.

By Editor

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