Key Takeaways:
– Economists suggest China must issue $1.42 trillion in ultra-long government bonds within the next two years.
– Beijing must devise strategies catering to challenges faced by migrant city workers instead of merely reducing interest rates.
– Amidst slowdowns in the manufacturing sector and tepid consumer confidence, the demand for economic easing measures increases.
– Policymakers are encouraged to support the struggling property market and bolster consumer trust.
– China’s financial reforms focus on budget, regional fiscal reform, and central-local government relationships.
As the world’s second-largest economy faces a continued strain on its growth due to the COVID-19 slump, the demand for China to stimulate its economy is intensifying. Liu Shijin, former deputy head of China’s State Council’s Development Research Center, proposes that China should issue at least 10 trillion yuan ($1.42 trillion) in ultra-long government bonds within the next two years.
Addressing Migratory Workers’ Challenges
A critical point in Liu’s argument is for Beijing to devise strategies catering to challenges faced by migrant city workers. He commented that Beijing should veer away from developed economies’ strategies, such as simply reducing interest rates, as the Chinese economy has yet to experience that degree of slowdown.
Such comments come after last year’s disappointing recovery from the COVID-19 pandemic. China’s economy remained under pressure from a real estate slump and poor consumer confidence, coupled with slower growth in the manufacturing sector. Increasing exports have been the silver lining during these challenging times.
Reduced Forecasts and Fiscal Risks
Goldman Sachs earlier this month echoed other institutions, reducing their annual growth forecast for China to 4.7% from the previous 4.9%. This cut reflects recent data releases and a delay in the impact of fiscal policy considered in their prior expectations. Goldman analysts have forewarned an amplified risk of China missing the ‘around 5%’ full-year GDP growth target, increasing the urgency for more demand-side easing measures. However, several businesses avouched that such measures had yet to have a significant impact.
Real Estate Concerns
A major concern remains the persistent slump in the property market, with associated investments dropping by over 10% in the first eight months of the year. To restore confidence and stabilize the market, Beijing-based chief economist Xu Gao at Bank of China International suggests the government bail out property owners and provide support at the scale of 3 trillion yuan, significantly more than the roughly 300 billion yuan announced so far.
Policy Directions
Amidst these challenges, China’s top leaders have prioritized enhancing the country’s capabilities in advanced manufacturing and technology. This emphasis arises, especially concerning growing U.S. restrictions on high tech. However, managing director Gabriel Wildau at consulting firm Teneo observes that top leaders seem content to strive towards this year’s GDP growth target of ‘around 5%’, even if the goal is achieved through nominal growth combined with deflation.
Moreover, China’s latest retail sales, industrial production, and fixed asset investment growth were slower than expected. These new shocks suggest the limits of conventional monetary policies, prompting Chief China Economist Ting Lu at Nomura to advocate for fiscal policies and reforms to take priority.
With these measures in mind, former Vice Minister of Finance Zhu Guangyao remains confident in China’s ability to reach its 2024 growth goal of around 5%. He emphasized China’s focus on budgeting, regional fiscal reform, and the relationship between central and local governments as key factors in achieving this goal.