Beijing tries again

CHINA ADVISORY - Report 20 Nov 2024 by Andrew Collier

Beijing has once again—after several earlier attempts—tried to strengthen the economy through a stimulus package. This package, at 10 trillion yuan, is larger than previous attempts but is unlikely to achieve the desired turnaround in the economy to halt the decline in property sales and the rise in local fiscal deficits. There are a number of aspects of this package:

- The leadership is increasingly focused on symbolic goals. This time, it is rejuvenation of the stock market as a “symbol” of overall economic success.
- The substantial participation by the state sector and wealthy urbanites in the stock market means that any price increases will assist the favored elites rather than the economy as a whole. This may help solidify Communist Party control but will do little to rejuvenate the economy.
- One important benefit of the bond-swap portion of the stimulus is that, according to some research, it will lead the banks to increase loans to private firms. Given the importance of the private sector to employment this is no small matter and could contribute to some restructuring of the economy to small business.

The central government is facing increasing pressure from local governments due to fiscal problems, unemployment, and lower incomes. This may lead to a new round of stimulus measures at even higher levels, but these, too, will likely fall short of major structural change, including consumer rebalancing.

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