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China: new wave of investment stimulus. Will they be sufficient for the economic recovery?

The Chinese economic data is not particularly bright, so there is often talk of stimulus, but these look a bit dull and almost disappointing, despite the announcement of yesterday's 0.10% cut in medium rates by the PBOC.

Then there is talk of a broader stimulus: Beijing is apparently considering issuing one trillion yuan, equivalent to about 140 billion dollars, of special Treasury bonds to help indebted local governments and boost business confidence. The special bonds would be used to finance infrastructure projects and other initiatives aimed at stimulating economic growth. It would also be used indirectly to help local governments pay off their debt.

As a reminder, one of the most likely sources of risk from a systemic credit event, cited by fund managers in their June survey, is China's real estate sector…

Probably these fears are indicated as realistic, given that in any case one of the best known speculations is to short sell the securities of the Chinese stock exchange.

Add a record youth unemployment rate to an increasingly volatile economy and growing fears of a credit event and market crash, and it becomes clear why Beijing is starting to worry. But even the latest proposed stimulus is unlikely to be considered sufficient.

Chinese youth unemployment

Beijing is also considering lifting restrictions on buying second homes in China's smaller cities as a way to revive the housing market, the WSJ sources said, echoing Bloomberg reports earlier this week. Currently, many cities prohibit buyers from purchasing more than one property, a policy aimed at preventing speculation.

According to the WSJ, the moves are a sign that Beijing officials are increasingly concerned about the economy's outlook now that the surge of enthusiasm following the abandonment of draconian Covid-19 controls has subsided.

The latest stimulus push follows a string of interest rate cuts by China's central bank this week, including Thursday that cut its key rate for the first time since August, as new data showed that the country's economic recovery is running out. All the recent cuts have been derided by market participants as too little too late to reverse China's accelerating decline.

Meanwhile, the latest data released from China overnight showed that growth continues to slow…

month-to-month retail sales and therefore fixed capital formation

…and it adds to Beijing's growing list of challenges, which also includes frosty relations with the United States and moves by Washington and its allies to limit China's access to advanced computer chips for national security reasons. Multinational manufacturers are rethinking China's role in their supply chains in response to concerns about future trade disruptions due to friction with the West.

Many traders and economists are increasingly skeptical that the latest measures are sufficient to reverse the weakening of confidence and prevent a further slowdown. The moves also signal that officials are still sticking to the old ways of stimulating growth by using loans to stimulate investment, while work on household well-being and their direct spending capacity would be needed. China should deal more with the micro than the macro, with small investments rather than large projects, but this would be a significant change in planning, and perhaps China is not ready yet.


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The article China: new wave of investment stimulus. Will they be sufficient for the economic recovery? comes from Economic Scenarios .


This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/cina-nuova-ondata-di-stimoli-agli-investimenti-saranno-sufficienti-al-rilancio-economico/ on Fri, 16 Jun 2023 09:00:59 +0000.