2023-09-06 04:59:01
The government has announced gradual measures to support the economy after a series of weaker-than-expected economic data in China puts the country’s gross domestic product (GDP) growth target of around 5% at risk this year. are teaching. But it has postponed the implementation of a “bazooka” type of stimulus, similar to the 2008-09 global financial crisis and the 2020 coronavirus pandemic.
The main reasons for maintaining a cautious stance are the Xi Jinping leadership’s efforts to curb debt growth, especially at the local level, as well as the need to reduce the excessive impact of the real estate sector on the Chinese economy, and the need to reduce the excessive impact of the real estate sector on the Chinese economy. For example, there is resistance to cash payments.
1.Why is China’s economy in trouble?
One keyword is real estate. The sector has been sluggish since 2021 after Chinese authorities tightened credit to big property developers and asked banks to slow down mortgage originations. The housing industry accounts for about 20% of China’s GDP, including related industries such as steel, cement and glass.
As a result of a series of regulations, housing sales have fallen and real estate investment has shrunk. Goldman Sachs Group Inc. estimates that a weak housing market will cut China’s GDP growth by 1.5 percentage points this year. The real estate crisis has shrunk the financial resources of local governments, which rely on sales of land use rights and other income. As a result, local authorities are reducing spending.
Furthermore, exports have fallen by double digits, incomes have stagnated, and the unemployment rate remains high, especially among young people. As a result, consumer confidence is also low. GDP growth is expected to hit 5.1% in 2023, according to the latest Bloomberg survey of economists, but some Wall Street firms say growth may fall short of government targets this year. .
China Housing Slump Has Lasted More Than Two Years
August sales drop was the deepest in over a year
Source: China Real Estate Information Corp.
2.Responses so far by the Chinese authorities
Last year, Chinese authorities began easing regulations on the financing of property developers and easing the burden of mortgages. But the risk of falling into a vicious circle where deteriorating cash flows prevent development projects from completing, dampening homebuyers’ appetites, and further eroding sales and prices has prompted authorities to take additional steps recently to help. He allowed the most restrictive big cities to ease down payment requirements on homes, took steps to encourage people to buy a second home, and asked banks to lower existing mortgage rates.
In addition, the Chinese government, which has finished cracking down on Internet platform companies, has indicated a policy to strengthen support for private companies and improve access to financing. For local governments, it has taken measures to improve cash flow by refinancing existing debt at low interest rates to support spending and infrastructure investment, and has also tried to bolster stock markets.
In terms of monetary policy, the People’s Bank of China (PBOC) has cut interest rates twice this year and stepped up measures to support the yuan exchange rate.
3.is there anything else i can do
The Chinese government, which has aggressively increased the issuance of sovereign bonds, seen as the safest and most in demand, to fund increased spending, has decided not to do so this time. Special government bonds were issued in 2009, when Japan was forced to deal with the impact of the global financial crisis, and in 2020, when it was hit by the corona crisis. Central government debt is still low by international standards, and the government’s control over capital flows and domestic banks is strong, giving it plenty of room to borrow. As a result, most economists believe there is room for more bonds.
China Consumption Recovery Underwhelms
Retail sales are below their pre-pandemic growth trend
Source: China National Bureau of Statistics; Bloomberg
4. What is the “bazooka” option
Market traders use the phrase to refer to the Chinese government’s massive stimulus package. Some economists are hoping it will match the 4 trillion yuan stimulus package launched in 2008, or nearly 10% of GDP at the time.
The People’s Bank of China provided a total of 3 trillion yuan to boost property sales, which were forced to slump in 2014 and 2015. As the US and Europe have implemented during the COVID-19 pandemic, the central government will take aggressive measures that have not been tried before, such as direct income distribution to households and the corporate sector, as well as housing purchases to push up prices. Economists are proposing to put money into it.
China’s Stimulus During Major Downturns
Source: People’s Bank of China, government releases, media reports, Bloomberg
5.Why China’s Leadership Remains Cautious
Recent economic indicators in China often fall short of expectations, but the economy is not in a sharp recession, and if the real estate market does not deteriorate further, we will achieve our target growth rate of around 5% this year. There are plenty of possibilities. Chinese officials have also expressed satisfaction that advanced manufacturing, such as electric vehicles, is doing well.
Xi’s leadership has shown a willingness to pursue the “quality” of the growth rate, rather than focusing solely on the pace of economic growth. Rather than relying on real estate as a means of short-term stimulus, curb the rise of local government debt as past debt-driven stimulus measures led to unnecessary projects and manufacturing overcapacity. also emphasized.
There are also domestic circumstances. Central governments do not necessarily trust local governments to distribute funds efficiently or without corruption.
Consumer benefits are also unlikely to materialize. Mr. Xi has warned of the “welfare” trap in the past, which could lead to “nurturing lazy people,” the official said. Wang Tao, chief China economist at UBS Group, said the leadership sees job growth as the best way to stimulate consumption. He analyzed that he intends to support the corporate sector with tax cuts and aim to realize it. As such, the keyword will continue to be a “targeted” stimulus.
6.why this is important
China is the world’s second-largest economy, and any slowing trend in GDP growth could affect nearly every country. According to the International Monetary Fund (IMF), if China’s growth accelerates by 1 percentage point, the rest of the world will benefit by about 0.3 percentage points.
Countries like Australia and Chile, which typically export raw materials including iron ore and copper, will be hit the hardest. China is a major buyer of Middle Eastern crude oil and also buys many technology products from neighboring East Asian countries. Volkswagen (VW), Nike, McDonald’s and other foreign-affiliated companies operating in China are vulnerable to sluggish sales growth. Countries that host Chinese tourists may see spending cuts.
China’s economy may overtake the U.S. at times, but not consistently, according to Bloomberg Economics. It also has political implications. If the growth rate of the Chinese economy slows down, domestic dissatisfaction may increase. Internationally, China’s global influence will decline due to such factors as cutbacks in loans to developing countries. It is possible.
Chinese Trade Is Critically Important For The World
It’s the top export destination for almost 40 economies
Source: International Monetary Fund
news-rsf-original-reference paywall">Original title:Why China Is Avoiding Using ‘Bazooka’ to Spur Economy: QuickTake(excerpt)
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