Stimulus Strategies Amid China’s Economic Challenges

China’s economy is currently facing significant challenges, characterized by slowing growth and declining domestic demand. In response, the government is preparing fiscal stimulus measures, with plans to exceed last year’s issuance of ultra-long bonds aimed at boosting consumer consumption. Despite these efforts, the impact of the stimulus is not expected to be felt until later this year, with specific details anticipated during the annual parliamentary meeting in March.

In 2024, consumer prices registered a minimal increase of only 0.5%, marking the slowest growth in a decade. To combat this, Beijing aims for 2% consumer price inflation by 2025 while also seeking to enhance technology development. The commercial property market, particularly in Beijing, remains under pressure, with Grade A office rents projected to fall nearly 15% following a previous 16% decline in 2024.

As part of its stimulus strategy, the government announced 150 billion yuan ($20.46 billion) in ultra-long bonds for trade-in subsidies and another 150 billion yuan for equipment upgrades, with 81 billion yuan of this already issued. However, analysts are skeptical about the trade-in program’s ability to sustainably boost consumer demand. 

The real estate sector, which once represented over a quarter of the economy, continues to struggle due to regulatory crackdowns, leading to high inventory levels and a drop in sales. Recently, home sales in major cities surged by nearly 40%, yet concerns remain about inventory pressures in smaller markets. Geopolitical tensions with the U.S. further complicate matters, as China emphasizes domestic security measures. Comprehensive details on the government’s strategies are anticipated to be revealed in March.

Source: CNBC