China has stepped up efforts to bolster its slumping economy, announcing more aid for the struggling property sector and highly indebted local governments. However, at a highly anticipated briefing on Saturday, Finance Minister Lan Fo’an refrained from specifying the size of the new fiscal stimulus, leaving investors and economists questioning whether these measures are sufficient to counter deflationary pressures and stimulate consumption.
Lan promised targeted actions such as allowing local governments to use special bonds to buy unsold homes, aiming to stabilize the property market, and providing debt relief for local authorities. However, many analysts were left unimpressed, citing a lack of urgency in addressing two key issues: the property downturn and deflation.
“The policy to support consumption sounds quite weak,” said Jacqueline Rong, chief China economist at BNP Paribas SA. She added that it remains too early to call for a significant recovery or turnaround in the property market or inflation.
While China did not provide concrete details about the stimulus, it is expected that more announcements could be made later this month when the legislature meets. Analysts had anticipated up to 2 trillion yuan ($283 billion) in fresh fiscal stimulus, potentially in the form of subsidies and consumption vouchers. However, Lan’s statements suggested China remains cautious, signaling that authorities are comfortable with the overall economic trajectory for now.
Lan hinted at the possibility of issuing more sovereign bonds and increasing government spending, which could provide some relief to local governments burdened by debt. These efforts aim to free up funds for public services, but they are unlikely to generate short-term economic growth.
Economists remain divided over the potential impact of these moves. Lynn Song, chief economist for Greater China at ING Bank, noted that while these measures may help, they are unlikely to drive China’s economic growth to 5% this year unless the scale of fiscal stimulus is larger than expected.
China’s focus on local government debt reduction and property market stabilization comes as data shows consumer prices have been below 1% for 19 consecutive months, underscoring weak domestic demand. Economists continue to urge a shift in fiscal policy to prioritize consumption over infrastructure, which has become less effective due to overbuilding.
As China navigates its economic challenges, the finance ministry will continue to explore ways to ease local government debt, expand funding for new sectors, and manage the risks posed by the ongoing property slump. However, economists remain cautious, noting that the lack of large-scale consumption measures may slow the country’s road to recovery.
