China’s economy is waiting for stimulus. Here are the country’s plans

BEIJING – As the government’s promised support continues to falter significantly, China’s economy has yet to see the turnaround that investors expected.

While policymakers have, since late September, cut interest rates and announced broad stimulus plans, details on the much-anticipated fiscal support will likely not emerge until an annual parliamentary meeting in March. Official GDP figures for 2024 are due on Friday.

“China’s fiscal stimulus is not enough to address the drags on economic growth … We are cautious on the long-term given China’s structural challenges,” BlackRock Investment Institute said in a weekly report on Tuesday. The firm, which is modestly overweight Chinese stocks, indicated that it was ready to buy more if circumstances changed.

Of increasing urgency in the meantime is the decline in domestic demand, and concerns about deflation. In 2024, consumer prices rose by just 0.5% after excluding volatile food and energy prices. That’s the slowest increase in at least 10 years, according to records available on the Wind Information database.

“Consumer spending remains weak, foreign investment is down, and some industries face growth pressure,” Yin Yong, mayor of the city of Beijing, said Tuesday in an official annual report.

The capital has the goal of consumer price inflation of 2% by 2025, and aims to strengthen the development of technology. While the national economic targets will not come out until March, senior economic and financial officials have told reporters in the past two weeks that fiscal support is in the works, and the issuance of ultra-long bonds to stimulate consumption would exceed last year.

The announcement announced by China will start to take effect this year, but it will probably take time to see a significant impact, Mi Yang, head of research for northern China at property consultancy JLL, told reporters in Beijing last week.

The pressure on the commercial property market will continue this year, and prices may accelerate their fall before recovering, he said.

Rents in Beijing for high-end offices, called Grade A, fell by 16% in 2024 and are expected to fall by almost 15% this year, with some rents still close to 2008 or 2009 levels. , according to JLL.

New shopping centers in Beijing were opened in 2024 with an average occupancy rate of 72% – previously such shopping centers would not have opened if the rate was below 75% or much closer to 100%, he said JLL. Within a year, however, the new malls saw occupancy rates reach 90%, the consultancy said.

Unlike the United States during the covid-19 pandemic, china did not distribute money to consumers. In contrast, Chinese authorities at the end of July announced 150 billion yuan ($20.46 billion) in ultra-long bonds for trade subsidies. and another 150 billion yuan for equipment upgrades.

China has already issued 81 billion yuan for this year’s trade program, officials said this month. It covers more home appliances, electric cars and a discount of up to 15% on smartphones priced at 6,000 yuan or less.

Consumers who buy premium phones tend to upgrade and recycle their devices more frequently than buyers at the lower end of the market, indicating the government may want to encourage a new group to shorten their upgrade cycle, Rex said. Chen, CFO of ATRenew, which operates. warehouses for processing smartphones and other second-hand goods.

Chen told CNBC on Monday that he expects the trade subsidy program can boost the recycling transaction volumes of eligible products on the platform by at least 10 percentage points, from 25% growth in 2024. It is also expected that the government will carry out a similar trade. – in politics for the next few years.

However, it is less clear whether the trade program alone can lead to a sustained recovery in consumer demand.

Nomura’s China Chief Economist Ting Lu said in a report on Tuesday that he expected sales growth to fade from the second half of this year, and that tepid home sales would limit demand for the household appliances.

Real estate and related sectors, such as construction, accounted for more than a quarter of the Chinese economy. When the central authority began to crack on the high levels of developer debt in 2020, which had ripple effects on the economy, alongside the Covid-19 pandemic.

China changed its stance on real estate in September after a high-level meeting led by President Xi Jinping called for halt the decline of the sector.

Measures to support the sector include the use of a white list process to finish the construction of the many apartments that have been sold but not yet built due to the financial constraints of the developers. New apartments in China are usually sold before completion.

Jeremy Zook, principal analyst for China at Fitch Ratings, said that the real estate market had not yet reached a bottom, and that the authorities could provide more direct support. He indicated that it was difficult for the economy to move on from real estate, despite China’s wishes to reduce its dependence on the sector for growth.

The latest measures of the government helped the broader rally of the stock market, and slightly raised the sentiment.

Sales of new homes in China’s largest cities in the last 30 days have increased by nearly 40% from a year ago, Goldman Sachs analysts said in a January 5 report.

But they warned that high inventory levels in smaller cities indicate that real estate prices “have more room to fall” and that homebuilding is “likely to remain depressed for years to come.” .

In the relatively affluent city of Foshan – near the southern Chinese city of Guangzhou – housing inventory could take 20 months to clear in one district, and seven months in another district, according to a 2024 report from Beike Research Institute, a firm affiliated with a large. China home sales platform.

The city as a whole saw space sold last year by 16% to the lowest in 10 years, the report said.

A slogan for part of Beijing’s efforts to support growth is an effort to build “security capabilities in key areas“said Yang Ping, director of the investment research institute at the National Development and Reform Commission. She was speaking at a press event on Wednesday.

This year, “increasing consumption has been prioritized before improving investment efficiency,” Yang said in Mandarin, translated by CNBC. “Expansion and increased consumption are the main focus of this year’s policy adjustment.”

She dismissed concerns that the impact of trade subsidies on consumption would fade after an initial peak, and indicated that more details would emerge after the parliamentary meeting in March.