Shifting focus: Employees work on wheel loaders at a factory in Qingzhou, China. The country’s manufacturing sector has not been able to offset the property slump. — AFP
Beijing: Chinese Premier Li Qiang gave his clearest signal yet that Beijing won’t resort to huge stimulus to revive growth amid the worst bout of deflation in decades.
This comes even as another batch of troubling data is testing the patience of investors who worry Beijing is behind the curve.
Speaking to leaders at the World Economic Forum this week, Li trumpeted his nation’s ability to hit its roughly 5% growth target last year without flooding the economy with “massive stimulus”.
While data Wednesday confirmed that economic goal, it also showed China recording its worst deflationary streak since the Asian Financial Crisis. Home prices fell last month by the most since 2015, underscoring the scale of the property downturn.
In portraying the economy’s trajectory as a success, Li stressed that officials did “not seek short-term growth while accumulating long-term risk” – a veiled reference to Beijing’s old methods of powering growth by borrowing heavily and funding the now-overheated real estate sector.
“Authorities don’t want to give the impression that they are very worried about growth, and they want to try to see the economy through 2024 without significant stimulus,” said Louis Kuijs, chief economist for Asia Pacific at S&P Global Ratings.
“There is a risk that they are underplaying the downward pressures on the economy.”
While “bazooka-style” stimulus helped lift the economy out of the global financial crisis more than a decade ago, that debt-fuelled expansion led to overcapacity and saddled many local governments with huge financial burdens.
Now the ruling Communist Party has to figure out what kind of stimulus – and how much – can help it successfully fend off a deflationary spiral, put a floor under the real estate crisis and create sustainable development.
Chinese-listed stocks in the United States fell after Li’s comments in Davos, Switzerland on Tuesday. Following the release of the economic data Wednesday, the Hang Seng China Enterprises Index notched its worst day since October 2022.
The benchmark for mainland equities slide as foreigners dumped the largest amount of shares in more than a year.
With key benchmarks in Hong Kong close to wiping out all gains seen since the late 2022 reopening frenzy, traders are scrambling to find the bottom of the rout.
Global funds from the United States to Australia are increasingly distancing themselves as doubts over Beijing’s long-term economic agenda drive a structural shift away from what was once a must-have market.
Li seems “to indicate that he is confident China can keep this growth rate without stimulus. I don’t think it will be easy,” said Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis SA.
While the People’s Bank of China took steps last month to pump cash into the financial system, it bucked widespread expectations for cutting a key policy rate on Monday.
“They need to cut rates if they want to reach 5% growth” this year, Garcia Herrero said, adding that China risks making the same mistakes as the Bank of Japan did in not reacting to deflation in the early 1990s, when that nation was beset by a prolonged period of poor economic growth. “They need to move.”
The government is mulling other tools. Bloomberg News reported this week that China is considering issuing one trillion yuan in ultra-long sovereign bonds, a sign policymakers are trying to shift more debt from local to central budgets.
Ping An Bank Co has put 41 developers on a list of builders eligible for its funding support, after adjusting its loan criteria, according to sources. — Bloomberg
