China’s stimulus calls are getting louder, at home and abroad

BEIJING — Several economists are calling for China to boost growth, including those based in the country.

China should issue at least 10 trillion yuan ($1.42 trillion) in ultra-long government bonds in the next year or two to invest in human capital, said Liu Shijin, former deputy head of the Development Research Center. from the State Council, China’s chief executive. body.

That’s according to a CNBC translation of Liu’s Mandarin remarks, available on financial data platform Wind Information.

His presentation at Renmin University’s China Macroeconomics Forum on Saturday was titled: “A basket of stimulus and reforms, an economic revitalization plan to substantially expand domestic demand.”

Liu said China should make a greater effort to address the challenges faced by migrant workers in cities. He stressed that Beijing should not pursue the same type of stimulus as developed economies, such as simply cutting interest rates, because China has not yet reached that level of slowdown.

After a disappointing recovery last year in the wake of the Covid-19 pandemic, the world’s second-largest economy has been under pressure from a housing slump and tepid consumer confidence. Official data over the past two months also points to slower output growth. Exports were the rare bright spot.

Goldman Sachs earlier this month joined other institutions in cutting its annual growth forecast for China to 4.7 percent from an earlier estimate of 4.9 percent. The cut reflects recent data releases and the delayed impact of fiscal policy compared to the company’s previous expectations, analysts said in a Sept. 15 note.

“We believe the risk of China missing its full-year GDP growth target of ‘around 5%’ is increasing, and thus the urgency for more demand easing measures is growing,” Goldman analysts said .

The much-anticipated third plenary meeting of China’s top leaders in July largely reiterated existing policies, while also saying the country would work hard to meet its full-year targets announced in March.

Beijing announced in late July more targeted plans to boost consumption with subsidies for exchanges, including upgrading large equipment such as elevators.

But several companies said the moves have yet to have a significant impact. Retail sales rose 2.1 percent in August from a year ago, among the slowest growth rates since the post-pandemic recovery.

Over the past two years, China has also introduced several incremental moves to support real estate, which once accounted for more than a quarter of the Chinese economy. But the property slump persists, with related investment falling more than 10% in the first eight months of the year.

“The elephant in the room is the housing market,” said Xu Gao, chief economist at Bank of China International in Beijing. He was speaking at an event last week organized by the Center for China and Globalization, a Beijing-based think tank.

Xu said there is demand from Chinese consumers, but they do not want to buy property because of the risk that the houses cannot be delivered.

Apartments in China were usually sold before completion. Nomura estimated at the end of 2023 that about 20 million such pre-sold units remained unfinished. Buyers of one such project told CNBC earlier this year that they had been waiting eight years to get their homes.

To restore confidence and stabilize the housing market, Xu said policymakers should bail out homeowners.

“The current policy to stabilize the property market is clearly not enough,” he said, noting that the sector likely needs support on a scale of 3 trillion yuan, up from the roughly 300 billion yuan announced so far.

China’s top leaders have focused more on strengthening the country’s capabilities in manufacturing and advanced technology, especially in the face of increasing US restrictions on high technology.

“While the Politburo meeting at the end of July signaled an intention to escalate policy incentives, the degree of escalation has been incremental,” Gabriel Wildau, managing director of consultancy Teneo, said in a note earlier this month. Monday.

“Top leaders seem content to move towards this year’s GDP growth target of ‘around 5%’, even if that target is achieved by nominal growth of around 4% combined with deflation of around 1% he said.

In a rare high-level public comment on deflation, former People’s Bank of China governor Yi Gang said in early September that leaders “should focus on fighting deflationary pressure” with “proactive fiscal policy and monetary policy accommodating”.

However, Wildau said “Yi was never in the inner circle of China’s top economic decision-makers, and his influence has further declined since his retirement last year.”

China’s latest report on retail sales, industrial production and fixed asset investment showed slower-than-expected growth.

“Despite rising government bond financing growth, infrastructure investment growth has slowed considerably as local governments are constrained by tight fiscal conditions,” Nomura’s chief China economist Ting Lu said in a Sept. 14 note. .

“We think China’s economy is facing a second wave of shocks,” he said. “Under these new shocks, conventional monetary policies are reaching their limits, so fiscal policies and reforms should come first.”

The PBOC left one of its key benchmark interest rates unchanged on Friday, despite expectations that the US Federal Reserve’s rate cut earlier this week could support further easing of monetary policy in China. Fiscal policy has been tighter so far.

“In our view, Beijing should provide direct financing to stabilize the housing market, as the housing crisis is the root cause of these shocks,” Nomura’s Lu said. “Beijing also needs to step up transfers (from the central government) to ease the fiscal burden on local governments before it can find long-term solutions.”

China’s economy officially grew further by 5% in the first half of the year. Exports rose a more-than-expected 8.7 percent in August from a year earlier.

“In the short term, we need to really focus to make sure we successfully achieve this year’s 2024 growth targets of around 5 percent,” Zhu Guangyao, former vice finance minister, told the China and Globalization Center event last week. . “We are still confident of achieving this goal.”

Asked about China’s financial reforms, he said they focus on the budget, regional tax reform and the relationship between central and local governments. Zhu noted that some government revenues were lower than expected.

But he pointed to how China’s third plenum focused on longer-term goals, which he said could be achieved with GDP growth of between 4 percent and 5 percent annually over the next decade.