Calls for China to Stimulate Growth Intensify Amid Economic Challenges
Economists are increasingly advocating for China to implement stimulus measures to boost its economic growth, with calls coming from within the country. Liu Shijin, a former deputy head of China’s Development Research Center, has proposed that China issue at least 10 trillion yuan ($1.42 trillion) in ultra-long government bonds over the next year or two to invest in human capital. In a presentation at Renmin University’s China Macroeconomy Forum, Liu emphasized that China should avoid copying the stimulus strategies of developed nations, such as cutting interest rates, as it has not yet reached that level of economic deceleration.
China’s recovery following the COVID-19 pandemic has been slower than expected, with ongoing challenges such as a real estate slump and low consumer confidence. Manufacturing growth has also decelerated, and major financial institutions like Goldman Sachs have lowered their 2024 growth forecasts for China. Goldman Sachs cut its growth estimate to 4.7%, citing weaker-than-expected data and the delayed impact of fiscal policies.
Despite Beijing’s efforts to address economic concerns, such as targeted subsidies for consumer goods, the effects have been limited. Retail sales in August saw minimal growth, rising only 2.1% year-on-year, one of the slowest rates since the post-pandemic recovery. Meanwhile, the ongoing real estate slump, which once accounted for over a quarter of the Chinese economy, remains a significant drag on growth.
Economist Xu Gao of Bank of China International highlighted the real estate market as a key issue, pointing out that consumer demand exists, but concerns over property developers failing to complete pre-sold units have deterred homebuyers. Xu urged the government to take more robust measures, including bailing out property owners, to stabilize the housing market.
While China’s leadership has prioritized advanced manufacturing and technological development in the face of U.S. restrictions, experts argue that the country needs to focus on fiscal reforms to address immediate economic challenges. Former People’s Bank of China governor Yi Gang recently called for proactive fiscal policy to combat deflationary pressure. However, Yi’s influence on current economic policy is limited, as noted by Gabriel Wildau, managing director at consulting firm Teneo.
China’s economic data from the first half of 2024 showed 5% growth, but local governments are facing fiscal constraints, limiting the effectiveness of infrastructure investment. Ting Lu, Nomura’s Chief China Economist, warned of potential secondary shocks to the economy, suggesting that fiscal policies and reforms should take precedence over monetary policies. Lu also advocated for direct government intervention to stabilize the property market and support local governments struggling under tight financial conditions.
Despite these challenges, some officials remain optimistic. Former vice finance minister Zhu Guangyao expressed confidence that China could achieve its 2024 growth target of around 5%, with long-term GDP growth projected to remain between 4% and 5% annually over the next decade.
