The stimulus measures sparked a stock market rally but economists are unsure they can fix deeper issues
Published October 4, 2024
As China prepared to celebrate its Golden Week holiday and mark the 75th anniversary of the People’s Republic, the ruling Communist Party rolled out a raft of measures aimed at boosting its ailing economy.
The plans included help for the country’s crisis-hit property industry, support for the stock market, cash handouts for the poor and more government spending.
Shares in mainland China and Hong Kong chalked up record gains after the announcements.
But economists warn the policies may not be enough to fix China’s economic problems.
Some of the new measures announced by the People’s Bank of China (PBOC) on 24 September took direct aim at the country’s beaten-down stock market.
The new tools included funding worth 800bn yuan ($114bn; £85.6bn) that can be borrowed by insurers, brokers and asset managers to buy shares.
PBOC governor, Pan Gongsheng, also said the central bank would offer support to listed companies that want to buy back their own shares and announced plans to lower borrowing costs, and allow banks to increase their lending.
Just two days after the PBOC’s announcement, President Xi Jinping chaired a surprise economy-focused meeting of the country’s top leaders, known as the Politburo.
Officials promised to intensify government spending aimed to support the economy.
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SOURCE: www.bbc.com
RELATED: If Stimulus Could Save China, It Wouldn’t Need It
The problem isn’t too much saving, it’s that politics inhibits productive investment of capital.
Published October 4, 2024
Beijing faces a lot of economic challenges these days. So it is that no sooner had the government last week unveiled its biggest attempt in years to shore up flagging growth than new calls emerged for more, more, more.
What economist and investors, many of them foreign, want now is fiscal stimulus—debt-fueled government spending to boost aggregate demand in the Keynesian mold—to accompany the credit stimulus Beijing has tried to implement of late. The Communist Party may even deliver. Not that it’ll mean much for the economy.
China’s problem is that although Beijing has been dismantling the country’s old property-driven economic model for four years, it has yet to devise a viable long-term replacement. At the peak of this now-defunct system, real estate—purchasing it, developing it, selling it and all sorts of related activities—accounted for around one-third of China’s annual output.
Observers in and outside China have long understood the dangers of this, especially because the country’s property economy was built on unrealistically cheap credit and unsustainably ebullient sentiment. Xi Jinping was the first leader brave (or foolish) enough to take action, when in 2020 he cracked down on excessive mortgage lending and started allowing property developers to go bankrupt.
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SOURCE: www.wsj.com
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