September 4, 2023 at 6:00 p.m. EDT
China took a row of gradual steps to boost the economy after a series of disappointing data showed the government is increasingly at risk of missing its growth target of around 5% for this year. But Beijing is not putting together a “bazooka” stimulus package like it did during the 2008-09 global financial crisis or even when the 2020 pandemic hit. Much of the reticence stems from President Xi Jinping’s government’s drive to control the growth of debt in the country, particularly at the municipal level; a desire to curb the outsized influence of the real estate sector on the economy; and a reluctance to issue western-style cash to consumers.
One keyword: property. This sector has been in a downturn since 2021 after Beijing tightened lending to major developers and ordered banks to slow mortgage lending – part of a specific policy to make the economy less dependent on real estate. Housing, along with related industries such as steel, cement and glass, accounts for about 20% of the country’s gross domestic product. As a result of these restrictions, real estate sales have fallen sharply and real estate investment has declined. Goldman Sachs Group Inc. estimates that the real estate downturn will shave 1.5 percentage points off China’s GDP growth this year. The housing crisis is also leaving local governments, which are responsible for most public spending in China, with less money because they rely on income from real estate and land sales. As a result, they have cut spending — a budget cut that UBS Group AG estimates was equivalent to one percentage point of GDP in the first half of the year. Meanwhile, exports have fallen at double-digit rates, and slower income growth and still fairly high unemployment, particularly among young people, mean consumer confidence remains subdued. Putting all these factors together, GDP growth is likely to come in at 5.1% this year, according to Bloomberg Terminal’s latest Bloomberg poll of economists, though several Wall Street banks see the possibility that the official target is missed.
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Why China Avoids Using the “Bazooka” to Stimulate the Economy
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