China Faces Growing Calls for Stimulus Amid Economic Pressures

China’s economy, the world’s second-largest, is grappling with significant challenges, including a persistent real estate slump and waning consumer confidence. As concerns mount over the country’s ability to meet its GDP growth target, economists are increasingly advocating for urgent stimulus measures to invigorate the economy.

Economic Challenges and Growth Targets

Goldman Sachs analysts recently indicated that the risk of China missing its annual GDP growth target of around 5% is rising. In a report, they emphasized the need for more demand-side easing measures as the current strategies to stabilize the property market have proven insufficient. Xu Gao, chief economist at Bank of China International, echoed this sentiment, stating that the existing policy framework is inadequate to address the ongoing economic slowdown.

Stimulus Proposals from Experts

Liu Shijin, a former deputy head of China’s Development Research Center, has proposed issuing at least 10 trillion yuan (approximately $1.42 trillion) in ultra-long government bonds over the next couple of years to invest in human capital. He presented this idea at the China Macroeconomy Forum, suggesting that the government should adopt a comprehensive stimulus plan to enhance domestic demand. Liu cautioned against merely emulating the stimulus measures of developed economies, as China has not yet experienced a level of economic slowdown that necessitates such drastic actions.

Real Estate Sector’s Ongoing Struggles

The real estate sector remains a critical issue for China’s economy. Once a driving force, it now poses a significant drag, with investments in real estate down over 10% in the first eight months of the year. Consumers are hesitant to invest in property due to fears over incomplete housing projects. Xu noted that about 20 million pre-sold units are still unfinished, creating further uncertainty in the market.

To stabilize the real estate market, Xu advocates for more substantial bailouts for property owners. He estimates that the sector requires around 3 trillion yuan in support, a stark contrast to the roughly 300 billion yuan allocated by the government so far.

Fiscal Policies and Local Government Constraints

China’s local governments are facing fiscal constraints that hinder their ability to stimulate infrastructure investment. Despite an increase in government bond financing, growth in this area has slowed significantly. Nomura’s Chief China Economist, Ting Lu, warns that the economy might encounter a second wave of shocks, necessitating a shift in focus toward fiscal policies and reforms.

While the People’s Bank of China (PBOC) has maintained key interest rates, the need for direct funding to stabilize the property market is becoming increasingly urgent. Experts agree that alleviating the financial burdens on local governments is essential for implementing effective long-term solutions.

Future Outlook

Despite these challenges, China officially reported a 5% growth in the first half of the year, with exports showing unexpected strength in August. As the government prepares for its annual growth goals, former finance vice minister Zhu Guangyao expressed confidence in achieving a growth rate of around 5%. However, he noted that achieving this target would require careful management of fiscal and budgetary reforms.

China’s economic landscape remains uncertain, with top leaders signaling a cautious approach to policy stimulus. As the country grapples with these complex challenges, the call for a more robust and comprehensive economic strategy is louder than ever.