Yunbang Xu, senior analyst at S&P Global Ratings, said that China’s fiscal stimulus program is gradually weakening.
According to the mentioned expert, the specified set of measures currently being implemented in the Asian country is gradually becoming a strategy that allows the state to buy time for industrial and consumer policy. Yunbang Xu says that the concept of fiscal stimulus, which Beijing adheres to, is short-term, but at the same time can generate certain long-term benefits. The expert notes that this positive scenario will be realized if the leadership of the Asian country implements projects aimed at modernizing the industrial system and restoring activity in the consumer sector. According to Yunbang Xu, such a strategy of action and goal setting will increase added value.
The Chinese leadership has set itself the goal of achieving an economic growth rate of about 5% this year. Some analysts tend to believe that this goal is too ambitious. In this context, the level of stimulus officially announced is mentioned. At the same time, it is not widely suggested in the expert community that China’s economic growth goal for 2024 belongs to the category of unrealistic scenarios, the prospects for the materialization of which are near zero against the background of the state of affairs in the space of objective reality.
Last month, the head of the Top Economic Planning Agency said that the Asian country will strengthen its macroeconomic policy. In this context, it was also noted the intention to improve coordination between fiscal policy, monetary policy, and political strategies in the areas of employment, industry, and municipal government.
The S&P report notes that a large amount of debt limits the scope of fiscal stimulus that authorities in Chinese regions can use. Special attention is drawn to the fact that these realities are typical for all administrative-territorial units of an Asian country, regardless of their economic situation.
In the city of Shenzhen, the share of government debt in GDP can vary from about 20%. In the city of Bazhong, the corresponding figure can be up to 140%. It is worth noting that Shenzhen differs from the other city that was mentioned as an example of a higher income level.
Yunbang Xu said about expectations that municipal authorities in China to focus on reducing the bureaucratic component in their activities and take several measures to improve the business environment and support long-term economic growth and living standards. The expert notes that the significant realism of this possible concept of action is explained by financial constraints and a decrease in the effectiveness of the mechanisms already in use to revive the economy.
Yunbang Xu also says that investing has less and less significant results against the background of the crisis situation in the Chinese real estate sector.
Currently, the rise of the volume of financial injections into fixed assets is recorded in the Asian country. The corresponding indicator in March showed an increase compared to the figures recorded during the previous two months. This result is largely due to a growth in investment in the manufacturing industry. Also in March, the pace of rising financial injections into infrastructure projects slowed down. Investments in the real estate sector continue to decline, which is a natural downward process against the background of a deep and prolonged downturn in this sphere of activity.
In 2024, Beijing announced plans to stimulate domestic demand through the use of subsidy mechanisms and other appropriate tools. In the context of these intentions, the Chinese leadership has focused special attention on upgrading equipment and trade-in consumer goods. Annual equipment costs are expected to exceed 5 trillion yuan ($704.23 billion). Last week, Chinese officials told reporters that the central government would strongly support the mentioned stimulus measures.
Having studied the data for the period from 2020 to 2022, S&P recorded a pattern manifested in the fact that the budgetary incentives of municipal authorities, as a rule, were more extensive and effective in cities with large local budgets. Experts say mentioned cities are less susceptible to the negative impact of the crisis in the real estate sector, have a strong industrial base and sustainable consumption, that able to demonstrate stability against the background of economic downturns.
S&P argues that industry, consumption, and investment will remain the main drivers of Chinese economic growth in the future.
Yunbang Xu says that high-tech sectors will continue to stimulate China’s industrial modernization. The expert also warned that industrial overcapacity in some sectors could trigger a drop in prices shortly.
As we have reported earlier, Fitch Downgrades China’s Outlook.
