June 22, 2024


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Why didn’t China use the “bazooka” stimulus to save the economy?

Why didn’t China use the “bazooka” stimulus to save the economy?

China The government has taken a series of additional steps to boost its economy after a series of disappointing data showed the government is increasingly at risk of missing its growth target of around 5% for the year. But Beijing is not withdrawing a “bazooka” stimulus package as it did during the global financial crisis in 2008-2009, or even when the pandemic hit in 2020. Much of the reluctance lies in a campaign by the president. Xi JinpingGovernment control of debt growth in the country, especially at the municipal level; the desire to reduce the huge impact of the real estate sector on the economy; and an aversion to Western-style cash distribution to consumers.

One keyword: property. The sector has been in decline since 2021, after Beijing tightened credit to large developers and told banks to slow down mortgage issuance – as part of a policy set out 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 GDP. As a result of these restrictions, home sales have fallen and investment in real estate has declined. Goldman Sachs estimates that the housing market downturn will reduce China’s GDP growth by 1.5 percentage points this year. The real estate crisis also means that local governments, which account for most of China’s public expenditures, have less money because they depend on housing revenues and land sales. As a result, they have cut spending – a fiscal contraction that UBS Group AG estimates is equivalent to a percentage point of gross domestic product in the first half of the year. At the same time, exports have fallen by more than 10%, and slower income growth and still somewhat high unemployment rates, especially among the youth, mean that consumer confidence remains weak. Putting all these factors together, GDP growth is likely to reach 5.1% this year, according to the latest Bloomberg survey.bloomberg station of economists, although many Wall Street banks see the possibility of missing the official target.

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Why does China avoid using the “bazooka” to stimulate the economy?