Boosting consumption was elevated to the top priority for only the second time in a decade. — Bloomberg
BEIJING: China’s top leaders have signalled stronger stimulus to help fill a hole in consumer demand. That doesn’t mean Beijing will roll out a “bazooka” package just yet, or abandon its factory focus.
Senior officials last week endorsed their strongest pro-growth stance in a decade, indicating bigger government spending and more interest rate cuts.
Boosting consumption was elevated to the top priority for only the second time in a decade, even before data released on Monday showed retail spending unexpectedly slowing.
Economists and foreign governments have long wanted officials to rebalance China’s two-track economy, where exploding exports have put Beijing on course for a record trade surplus as domestic demand languishes.
But the recent steps hinted it will likely fall short of the kind of radical action analysts believe is required to stem a deflationary spiral and rescue the property market.
Alarmingly, low bond rates indicate the gauntlet facing policymakers in reviving the confidence that’s foundational for spending.
While officials vowed to sharply raise funding for a programme subsidising big-ticket consumer items on Monday, so far that push has had limited effect as consumers keep saving under a gloomy job market.
The ruling Communist Party faces a “long, long battle” to reflate the economy, said Robin Xing, chief China economist at Morgan Stanley, adding that 2025 will “be the year of trying”.
“They will try a lot of things – see it’s not enough and then keep trying,” Xing told Bloomberg Television. “Maybe by 2026 finally they will find the right dose of policies, a combination of consumption-centric stimulus plus social safety net reform.”
The drive for domestic demand still doesn’t represent a fundamental pivot from President Xi Jinping’s grand strategy for high-tech manufacturing to propel the world’s No. 2 economy.
Boosting Chinese consumers will shield the prized factory sector if a trade war with Donald Trump cuts China’s access to international markets.
Beijing’s next stimulus moves could come this week. The US Federal Reserve (Fed) is expected to cut rates today, creating easing room for China’s central bank.
Beijing will only reveal its specific economic roadmap for 2025 at an annual legislative meeting in March, which sets the annual growth goal and financial deficit.
That means any expansion in government spending likely won’t come in the next few months.
A commentary in the People’s Daily said economic goals play a strong guiding role.
“Maintaining a certain level of economic growth is crucial to resolving various contradictions and problems in development,” according to the article dated Dec 17.
The overall increase in financial stimulus, including higher headline deficit and other government bonds not covered by that, could be equivalent to about 2% of gross domestic product, according to forecasts by UBS Group AG and BNP Paribas SA.
While that’s an improvement for the traditionally cautious Finance Ministry, the boost is modest globally. The United States, for example, expanded its budget deficit by more than 13% of its gross domestic product in the span of one year in response to the initial Covid pandemic.
China’s broad financial expenditure increased by 1.4% in the first 11 months of this year from a year ago, according to Bloomberg calculations of official data released on Monday.
That only provided a small boost to the economy and fell short of an increase of 8% in broad expenditure planned in the annual budget in March.
Similarly, although forecasts of 40 to 60 basis points of interest rates cuts next year mark a big step for the People’s Bank of China, they’re dwarfed by the Fed’s 150-basis-point rate cut in response to Covid, or its decision to push rates to near zero from 4.5% in the span of a year in 2008 to deal with the financial crisis.
Authorities should commit to hitting a 2% inflation, and vow to keep cutting rates and raising public spending until that goal is reached, said Liu Lei, a researcher at state think tank, the National Institution for Finance and Development in Beijing. — Bloomberg