China Initiates Late Stimulus Efforts to Achieve 2024 Growth Target, Reports Reuters

By Liz Lee and Ellen Zhang

BEIJING – China’s central bank has reduced interest rates and injected liquidity into the banking system in a concerted effort to boost economic growth towards the government’s target of approximately 5% for this year.

Further fiscal measures are expected to be revealed ahead of China’s week-long holidays starting on October 1, following a meeting among top Communist Party officials that highlighted the urgency of addressing growing economic challenges.

Recent reports indicate that major cities such as Shanghai and Shenzhen are looking to lift key home purchase restrictions in the coming weeks. This follows similar actions taken by many smaller cities aimed at alleviating a prolonged property crisis.

In conjunction with the recent Politburo meeting, China plans to issue special sovereign bonds amounting to around 2 trillion yuan as part of new fiscal stimulus efforts, according to sources familiar with the situation.

Capital Economics’ chief Asia economist, Mark Williams, has projected that this stimulus package could boost annual output by approximately 0.4% compared to previous forecasts. He noted that while it is late in the year, the implementation of such a sizable package should help meet the growth target.

Chinese stocks are poised for their best week since 2008 on the back of these stimulus expectations.

The nation’s economy is grappling with significant deflationary pressures, largely fueled by a downturn in the property sector and weakened consumer confidence. This situation has further revealed an over-reliance on exports amidst a tense global trade climate.

Recent economic data has largely not met expectations, raising concerns among economists regarding the viability of the growth target and hinting at a potential long-term structural slowdown. Notably, recent figures showed a sharp decline in industrial profits for August.

Goldman Sachs analysts have remarked that the persistent economic weakness has hit a critical threshold for policymakers.

As noted earlier by the People’s Bank of China Governor Pan Gongsheng, the central bank has lowered the reserve requirement ratio by 50 basis points, a move set to release 1 trillion yuan in liquidity. Concurrently, the benchmark interest rate for seven-day reverse repurchase agreements has been cut by 20 basis points to 1.50%. These changes took effect immediately, and Pan has indicated the possibility of further reductions later in the year.

With dwindling credit demand from households and businesses, investors are turning their focus to the anticipated fiscal measures to be announced soon. Recent reports suggested that part of the 1 trillion yuan from special bonds will enhance subsidies for consumer goods replacement programs and assist in upgrading business equipment. Additionally, families with two or more children, excluding the first child, will receive a monthly allowance of approximately 800 yuan.

China also aims to raise another 1 trillion yuan through a separate issuance of special debt to help local governments manage their debt challenges. Furthermore, reports indicate that the government is considering injecting up to 1 trillion yuan into its major state banks.

While much of China’s fiscal stimulus has historically been directed towards investment, returns have diminished, leaving local governments heavily burdened with approximately 13 trillion yuan in debt. The impending fiscal measures may signal a strategic shift towards stimulating consumption, an objective Beijing has sought for over a decade but has struggled to realize.

As consumer spending remains under 40% of annual economic output—around 20 percentage points lower than the global average—China’s investment levels continue to exceed the global average, leading to increased debt without corresponding growth.

During their meeting, Politburo members also committed to stabilizing the distressed real estate market, planning to expand a list of housing projects eligible for further financing and revitalize unused land.

Shanghai and Shenzhen are working to eliminate restrictions on home purchases, with Beijing also considering lifting similar limits in a more gradual manner across most areas.

The September meeting typically does not focus on economic issues, reflecting growing anxiety among officials regarding the current economic landscape.

Analysts from BNP Paribas expressed that the recent Politburo meeting indicates a rising concern among China’s top leadership about the economic situation.