China intends to substantially augment its financial investments to stimulate a resurgence in economic activity.
Without revealing the exact extent of the economic stimulus plan, Finance Minister Lan Foan stated at a news conference on Saturday that there will be more "economic countermeasures" in place this year.
He mentioned that China has ample capacity to issue debt still.
China's second-largest economy is grappling with severe inflationary pressures due to a significant slowdown in the real estate market and a lack of consumer confidence, which highlights its excessive dependence on exports in an increasingly volatile global trade landscape.
Various economic indicators have fallen short of expectations in recent months, leading to concerns among economists and investors that the government's anticipated 5% growth rate for this year may be at risk, and that a prolonged economic downturn might be looming.
Future data, set to be released soon, is predicted to display further weakness, but Zheng Shanjie, chairman of the National Development and Reform Commission (NDRC), expressed "complete confidence" that the growth target will be achieved.
China's financial markets have been abuzz with speculation regarding fiscal stimulus measures after the Politburo, the Communist Party's top leaders, indicated an increased sense of urgency over mounting economic challenges during their September meeting.
Following that meeting, Chinese stocks skyrocketed, reaching two-year highs and climbing 25% within a few days, before sliding due to the lack of updated details on the government's spending plans.
Reuters reported in late October that China intends to issue special sovereign bonds amounting to approximately 2 trillion yuan ($284.43 billion) this year as part of the new fiscal stimulus package.
Half of this sum would be utilized to address local government debt issues, while the remaining half will subsidize purchases of household appliances and other goods, as well as fund a monthly allowance of around 800 yuan, or $114, for each family with two or more children.
Additionally, Bloomberg reported that China is contemplating injecting up to 1 trillion yuan ($142 billion) in capital into its major state banks to boost their ability to support the economy, primarily through the issuance of new sovereign bonds.
geqing approval from the parliament is a standard procedure for additional debt issuance in China, and they are expected to convene in the coming weeks.
More resources required
In response to the issue, the central bank announced its most substantial monetary support measures for the economy since the Covid-19 pandemic in September, including measures to revive the property sector, which has been struggling for years.
While these measures have propelled Chinese stock prices, many analysts argue that Beijing needs to tackle the underlying structural problems, such as boosting consumption and decreasing its reliance on debt-funded infrastructure projects.
Most of China's fiscal stimulus is still channeled into investment, but returns are dwindling, and the spending has burdened local governments with $13 trillion in debt.
Lan stated that Beijing will help local governments manage their debt, mentioning that they still have 2.3 trillion yuan ($325.5 billion) to allocate in the last three months of this year, including unspent funds and debt quotas.
Local governments will also be permitted to repurchase unused land from property developers, Lan explained.
Severe wage gaps, high youth unemployment, and a frail social safety net signify that Chinese household spending accounts for only around 40% of the country's annual GDP, which is 20 percentage points beneath the global average. Investment, in comparison, is 20 points above the average.
A study conducted by recruitment platform Zhaopin revealed that average salaries in China's 38 major cities decreased by 2.5% in the third quarter as compared to the second.
Swedish furniture retailer Ikea, which has been impacted by the real estate crisis, urged the Chinese government on Thursday to introduce further stimulus measures.
Amidst these economic challenges, Ikea, a Swedish furniture retailer affected by the real estate crisis, called on the Chinese government to implement additional stimulus measures.
Given the economic pressures, it's crucial for China to employ effective business strategies and policies to mitigate these challenges and stimulate growth in other sectors apart from investments.
