China has announced plans to significantly boost government spending in an effort to reignite its slowing economy. According to Finance Minister Lan Foan, the country will issue more government debt to provide subsidies for low-income households, support the struggling property market, and inject capital into state-owned banks.
Increased Fiscal Stimulus Measures
In a recent press conference, Lan Foan revealed that China will introduce more “counter-cyclical measures” to stimulate growth. Without specifying the exact amount of stimulus, he stated that the government has room to increase debt and take action to stabilize the economy. This comes as the world’s second-largest economy grapples with deflationary pressures stemming from a property market downturn and weakened consumer confidence.
Economic Challenges and Growth Targets
China’s economy has faced significant hurdles, with recent economic data falling short of expectations. Concerns have grown over whether the government can meet its projected 5% growth target for 2024. Nevertheless, Zheng Shanjie, Chairman of the National Development and Reform Commission (NDRC), expressed confidence that the target will be achieved.
Economists and investors are keeping a close watch on the government’s fiscal policy, especially following a September Politburo meeting that highlighted the need for urgent action to address economic headwinds.
Plans for New Sovereign Bonds
As part of its fiscal stimulus efforts, China is preparing to issue approximately 2 trillion yuan ($284.43 billion) in special sovereign bonds this year, according to Reuters. About half of these funds will be used to help local governments manage their debt, while the other half will go toward subsidies for home appliance purchases and financial support for families with two or more children.
Additionally, China is reportedly considering injecting up to 1 trillion yuan ($142 billion) into state-owned banks to enhance their capacity to support economic recovery. These plans are subject to approval by the National People’s Congress in the coming weeks.
Need for Long-Term Solutions
While China has implemented several short-term monetary policies, such as mortgage rate cuts, analysts emphasize the importance of addressing long-term structural issues. Key challenges include boosting domestic consumption and reducing the country’s reliance on debt-driven infrastructure investments.
China’s household spending accounts for less than 40% of its annual economic output, well below the global average. Investment, on the other hand, remains high, further straining local governments, which are already carrying $13 trillion in debt.
Impact on Wages and Consumer Spending
A report by recruiting platform Zhaopin revealed that wages in China’s 38 largest cities fell by 2.5% in the third quarter of 2024. This decline in income, coupled with high youth unemployment, has led to lower consumer spending, putting additional pressure on the economy.
Retailers like Ikea, which operates 39 stores in China, have also been affected by the property market slump and have called for further stimulus measures to stabilize demand.
